Apple Downgraded at Jefferies on iPhone Outlook

Another top story. Shares of Apple have been under pressure. The company was downgraded at Jefferies to underperform from hold with a price target now of $263.66. The downgrade comes amid concerns over Apple's product road map. Jeffrey says its supply chain checks suggest an all glass iPhone, which was expected in September 2027, has been canceled due to low production yields. Here with more is Jeffrey's equity analyst, Edison Lee. Edison, it's great to have you. Can can we start with the supply chain checks? You know, to some people in the Bloomberg tech audience, they might not be familiar with what it is you guys go out and do. You've looked at the all glass iPhone. Let's start with that first conclusion that you've drawn. Yeah. Sure. In 2027, that's the twentieth anniversary of the iPhone. And that's why our understanding is that Apple actually has this new design, which is all glass, meaning that, there will not be any metal mid frame that you you will be able to see. So the entire iPhone is actually wrapped in glass, and also there will be no physical buttons on the side. It's all replaced by haptics. So that's why this is going to be a beautiful looking iPhone that will be marketed as twentieth anniversary mode. And we think that this new form factor for the for the iPhone, what I call a a strict iPhone, I think is is gonna be a pretty expensive and also high end looking phone. And we think that over time, it may it may not be just marketed as a one off product. I think that over time, this form factor may actually be transported to the Pro and Pro Max, maybe in f y twenty and f y twenty nine as well. So this is how Apple intended to move up, the product road map and move up the ASP, which I think is very important right now given soaring memory costs. This is what Mark Gurman at Bloomberg has reported under the code name glass wing, and he's given on this show a lot of detail. The second factor is ASPs. Very simply, why is it important that you see a path for Apple to maintain a higher average selling price? Well, I think that there are two reasons. Right? Number one is that smartphone itself is a very mature product, and that's why the majority of the demand is gonna is gonna come from replacement demand. And we think that with AI not yet taking hold, right, to change the utility of the smartphone, I think that new form factor is important for Apple to be able to raise the ASP over time. And particularly right now, AI has taken over as the king in the supply chain, and that's why Apple is no longer the king in the supply chain anymore as the biggest customers. And that's why I think one of the medium to long term challenges facing Apple is gonna be supply chain challenges. Whether they secure enough supply of chips, when they secure enough supply of memory, and these prices continue to go up. And that's why to be able to introduce products that can sell at a higher prices to offset these supply chain challenges, I think, is important. Edison, on September 1, Tim Cook steps down as CEO and becomes executive chair, and then John Turner takes over as CEO. How have you modeled for that change, and do you see it reflected in the research that you put out on an all glass iPhone and in your supply chain checks? I think that right now, the two bottlenecks that Apple is facing, number one is memory. Number two is the advanced node capacity at TSMC. Because the iPhones and also all Apple products are usually powered by the most advanced nodes at TSMC. But right now, I think TSMC's most advanced nodes going forward will be mainly used by AI companies who can pay more than consumer electronics companies such as Apple. And our memory is exactly the same situation where AI companies are crazy about memory. They wanted to pay higher prices for memory, and they would occupy the majority of the memory production capacity among the major players. And that's why in order for Apple to be able to get enough memory at the right prices and also to to get enough, and faster process and chips at the right price at the right time, think it's gonna be a big challenge for Apple. One of the things that was conceded in the earnings call was that they had misread demand and therefore had not placed the orders for enough capacity on lead edge chips. Just how much did that that surprise you, Edison, the mismanagement of the supply chain? I wouldn't describe that as mismanagement, but I think that the structure of the supply chain has been dramatically altered by AI. And I think before AI came along, Apple is the biggest is the biggest customers of many companies, including TSMC, including maybe Hynix or even part of Samsung. But I think that they are no longer the biggest. And I think that they potentially can fall to number three in 2027 in TSMC because other AI companies are actually moving forward with bigger orders and also higher ability to pay more. And as a result of that, I think Apple needs to, I think, manage the supply chain a lot more efficiently. But in order to offset these bottlenecks and also offset these higher cost components, I think the most feasible road map for them is actually to introduce higher priced items so that consumers are willing to pay more, and they can offset higher component cost and protect the margin.