About:AAPL Includes:EBAY, GLW, GTAT
Apple has chosen a historic location for the September 9 event: Flint Center in Cupertino, Calif.
This is the same Flint Center where Steve Jobs unveiled the original Mac on January 26, 1984.
If you weren't there at the time, then travel to the 44:10 mark in this YouTube video to get a taste of just how historic a moment it was for Apple and personal computing.
They've also invited some special guests.... the fashion media
Apple's stock has a history of selling off on news after years of annual iPhone and iPad iterations. The 23% gain year-to-date has been already been impressive and leaves many to wonder if the best is already priced in and that this is going to be yet another 'sell the news' kind of event.
This is a legitimate concern, and so lets dig into the story.
iPhone:
What we don't know are the details. There are a great many details about the phones that may leave some disappointed or surprised. Colors? Memory? Where and when will they go on sale? Price? NFC? An official announcement about Payments?
I believe the main risk and point that key analysts will focus on is the price of the phones. It is simply not in Apple's DNA to underprice anything, and the risk is that the price, particularly for the 5.5", could be perceived as too high and make people wonder if they've gone too far.
We could get the best case scenario results on all of the other variables, but if price is seen as high, we will likely see a selloff as investors take the cautious 'sell the news' approach and wait for sales numbers to start rolling in. We could also see a delay for the 5.5", which would no doubt be a huge disappointment.
Risk: Downside. Market fully expects two phones, with potential disappointment on pricing or delayed launch for the 5.5"
iWatch:
- Moderate expectation of iWatch unveiling
- Little to no expectation of iWatch launch
Until maybe a few days ago, I wouldn't say much of the market was pricing in an iWatch announcement or even a mention of it being in the pipeline.
I have changed my opinion on this and believe there presents a strong probability for a significant part of the market to be surprised to see the iWatch unveiled on Tuesday.
Recent articles over the last few days have given me confidence that Apple is ready to let the iWatch hit the big stage
Before now, there wasn't really anything coming directly from Apple suggesting the iWatch would be at the event.
There is a reason why Apple has invited until more recently (the news hit after the Friday close); they didn't want to telegraph to the market that the iWatch is on tap.
There is also this:
A few developers have it already, but Tuesday is likely going to be the SDK announcement for many more will get it to give them months of lead time to work on apps so that there is a healthy app store waiting for buyers when the device does hit the market, whenever that may be.
This is exactly what Jobs did in 2007 when the iPhone was unveiled for the first time with SDK, not to begin actual product sales until six months later.
There have been many rumors about the screen being flexible, which would suggest a square or rectangular face. Analysts may be surprised if the face is circular, as it may have a more mass market fashion appeal. I mean, what self-respecting designer wants a square watch?
Image Sources: Left, Middle, Right
Above all what the unveiling will really do is give Apple stock its innovation premium back. Consumers and investors have not seen an all-new hardware product category out of Apple since the first generation iPad in 2010.
Take a moment to think about that. It has been 4 years Apple has held an event like the one we are about to get on September 9th.
Risk: Upside. The wearable is not fully expected by the market but
recent news suggests it will be unveiled.
Payments: (for iPhone and/or iWatch)
- Moderate to High expectations that Payments will be unveiled
- Moderate expectations that Payments will be launched
The market opportunity for Apple to make a move into mobile payments cannot be understated. With 800M credit cards on file it can actually move the needle for this 600B market cap company.
The mobile payments opportunity is seen by most analysts as a larger opportunity than the iWatch itself with a bigger addressable market with above average margins.
Tim Cook, for a guy who doesn't say a lot, had some strong commentary towards the payments opportunity that is unique to Apple's customer base
A formal announcement that Payments have arrived in the iPhone 6 AND will as soon as two quarters out, it will force analysts to revise their earnings estimates. In fact, Apple would likely revise their own earnings guidance with an immediate pop to the stock, although I don't expect this to make a meaningful impact to EPS until 2016.
Risk: Upside. The market is currently split on the announcement of Payments, but is a high probability with the phones and wearable both to appear at the event.
Cover Glass: Gorilla Glass / Sapphire / Both ?
- Low to Moderate expectation that Sapphire launching in both phones
- Moderate to High expectation that Sapphire is launching one phone
- Full expectation that Sapphire launching in the iWatch (when it launches)
This brings the topic to another great trading opportunity going into the Apple event which is GT Advanced Technologies (GTAT).
Speculation has been flying ever since Apple inked a near $600M deal with GT Advanced Technologies to greatly expand Sapphire production. Is it for the wearable? A phone? Both phones? Eventually iPads too?!
GTAT stock doubled from November through April on the news, hitting a high around $20, but has been very volatile ever since as rumors of production problems led many analysts to state that supply constraints would hold back the material from being featured on both or even one iPhone in a September launch. There are also many who suggest the material isn't suitable for a large application such as a 5.5" screen, for reasons such as cost and weight.
One need only look at the 1 year chart to see how schizophrenic this stock has been as good news and bad news has circulated the stock-o-sphere.
Image Source: Google Finance (Sep 5 Close)
Shares sold short as of August 15 were 56M.... of 137M outstanding.
That's 40% short interest. This is a short squeeze candidate if I've ever seen one, which is likely why Piper Jaffray analyst Mike Ritzenthaler expects shars of GTAT to move 'sharply' on an announcement as he firm resumed coverage with an Overweight weighting and $23 price target.
With the price sitting around $17 this marks the middle of the $14 to $20 range we have seen since April.
Using price as the gauge, the market sentiment is split as to whether production issues have delayed Sapphire's implementation and how many devices will use the material.
I believe this mixed sentiment provides an opportunity for upside at the event, as there appears higher probability of the iWatch unveiling which alone will re-ignite imaginations and attention towards this name. The presence in one or both phones would be an even greater catalyst.
Risk: Upside to GTAT. There are three devices that can potentially feature Sapphire and with mixed sentiment, we only need to see one for confidence to return to GTAT stock.
Where are we now?
iPhone: Downside Risk. Market has fully priced the phones, with potential disappointment on pricing (or a delay of 5.5")
iWatch: Upside Risk.. The wearable is not fully expected by the market but recent news suggests it will be unveiled.
Payments: Upside. The market is currently split on the announcement of Payments, but has increased potential with the phone and now the wearable both likely to appear at the event.
Sapphire: Upside to GTAT. There are three devices that can potentially feature Sapphire and with mixed sentiment, we only need to see one for confidence to return to GTAT stock.
Some traders have already taken the conservative approach by taking profits leading into the event (evidenced by Apple's drop from $104 to $98) although there is certainly room for more selling. We all learnt this lesson from the 5C/5S launch, right?
I believe the current overall sentiment in AAPL high, but not extreme, while Apple is poised to finally unveil most if not all of the product categories investors have been clamoring for but do not expect to see all at once.
Apple is also yet to break its all time high market cap, which was roughly $655B at the highs in 2012 and would represent roughly $110 today (thanks to buybacks). Many have overlooked this fact.
Apple Suppliers and Competitors
Corning (GLW), which produces Gorilla Glass, has recently found support and some momentum and would likely benefit from hearing that Sapphire isn't ready for the new iPhones.
Image Source: Google Finance (Sep 5 Close)
Payments is good news for Apple, bad news for eBay (EBAY).
PayPal is the jewel in Ebay's crown and would likely see pressure if Apple Payments hits the headlines on Tuesday.
Image Source: Google Finance (Sept 5 Close)
There are many other Apple suppliers and competitors that will be impacted by news out of tomorrows event and that is likely to percolate over the coming months.
- Universal Display (OLED) likely iWatch screen supplier
- NXP (NXPI) likely NFC chip supplier
- Garmin (GRMN) manufactures several wearables
- BlackBerry (BBRY) ... who are they again? (Kidding, I am actually long BBRY for reasons to be left to another article)
Conclusion
The September 9 event is not just another iPhone launch event. The iWatch unveiling will be the first all new hardware product from Apple since the iPad in 2010. Payments will hit revenues sooner than analysts have forecast. Investors should remain long Apple and GT Advanced Technologies for the long term.
Summary
- Two iPhones, the iWatch and Payments are on the table to be unveiled on September 9.
- Investors have not seen an all new hardware product from Apple since the iPad in 2010.
- This is not another sell-the-news event, investors should stay long.
This is the same Flint Center where Steve Jobs unveiled the original Mac on January 26, 1984.
If you weren't there at the time, then travel to the 44:10 mark in this YouTube video to get a taste of just how historic a moment it was for Apple and personal computing.
They've also invited some special guests.... the fashion media
"Apple Inc has invited top fashion editors and bloggers in unprecedented numbers to its Tuesday launch gala, further evidence that the iPhone maker is preparing to take the wraps off a smartwatch." - Reuters, September 6thIs this a telegraph by the company that the iWatch has arrived? If it has, should I be long going into the unveiling?
Apple's stock has a history of selling off on news after years of annual iPhone and iPad iterations. The 23% gain year-to-date has been already been impressive and leaves many to wonder if the best is already priced in and that this is going to be yet another 'sell the news' kind of event.
This is a legitimate concern, and so lets dig into the story.
iPhone:
- Very High expectation of 4.7" and 5.5" phones to be announced with sales beginning within weeks.
What we don't know are the details. There are a great many details about the phones that may leave some disappointed or surprised. Colors? Memory? Where and when will they go on sale? Price? NFC? An official announcement about Payments?
I believe the main risk and point that key analysts will focus on is the price of the phones. It is simply not in Apple's DNA to underprice anything, and the risk is that the price, particularly for the 5.5", could be perceived as too high and make people wonder if they've gone too far.
We could get the best case scenario results on all of the other variables, but if price is seen as high, we will likely see a selloff as investors take the cautious 'sell the news' approach and wait for sales numbers to start rolling in. We could also see a delay for the 5.5", which would no doubt be a huge disappointment.
Risk: Downside. Market fully expects two phones, with potential disappointment on pricing or delayed launch for the 5.5"
iWatch:
- Moderate expectation of iWatch unveiling
- Little to no expectation of iWatch launch
Until maybe a few days ago, I wouldn't say much of the market was pricing in an iWatch announcement or even a mention of it being in the pipeline.
I have changed my opinion on this and believe there presents a strong probability for a significant part of the market to be surprised to see the iWatch unveiled on Tuesday.
Recent articles over the last few days have given me confidence that Apple is ready to let the iWatch hit the big stage
Before now, there wasn't really anything coming directly from Apple suggesting the iWatch would be at the event.
There is a reason why Apple has invited until more recently (the news hit after the Friday close); they didn't want to telegraph to the market that the iWatch is on tap.
There is also this:
"A small handful of high-profile social network and services companies with apps on the iPhone and iPad App Store have already been seeded with a pre-release version of the Apple SDK (Software Development Kit) for wearables under strict non-disclosure agreements. One of the developers with access to the pre-release SDK is Facebook, according to a source."For those of the less technical persuasion, the SDK is the software development kit that developers can use to begin making apps. The fact that it has been released to select developers further suggests that the iWatch could be unveiled on Tuesday, however not to hit store shelves anytime soon.
- 9to5Mac, September 6th
A few developers have it already, but Tuesday is likely going to be the SDK announcement for many more will get it to give them months of lead time to work on apps so that there is a healthy app store waiting for buyers when the device does hit the market, whenever that may be.
This is exactly what Jobs did in 2007 when the iPhone was unveiled for the first time with SDK, not to begin actual product sales until six months later.
There have been many rumors about the screen being flexible, which would suggest a square or rectangular face. Analysts may be surprised if the face is circular, as it may have a more mass market fashion appeal. I mean, what self-respecting designer wants a square watch?
Image Sources: Left, Middle, Right
Above all what the unveiling will really do is give Apple stock its innovation premium back. Consumers and investors have not seen an all-new hardware product category out of Apple since the first generation iPad in 2010.
Take a moment to think about that. It has been 4 years Apple has held an event like the one we are about to get on September 9th.
Risk: Upside. The wearable is not fully expected by the market but
recent news suggests it will be unveiled.
Payments: (for iPhone and/or iWatch)
- Moderate to High expectations that Payments will be unveiled
- Moderate expectations that Payments will be launched
The market opportunity for Apple to make a move into mobile payments cannot be understated. With 800M credit cards on file it can actually move the needle for this 600B market cap company.
The mobile payments opportunity is seen by most analysts as a larger opportunity than the iWatch itself with a bigger addressable market with above average margins.
Tim Cook, for a guy who doesn't say a lot, had some strong commentary towards the payments opportunity that is unique to Apple's customer base
"We are seeing that people love being able to buy content, whether it's music or movies or books, from their iPhone using Touch ID. It's incredibly simple and easy and elegant and it's clear there's a lot of opportunity there. The mobile payment area in general is one that we've been intrigued with. That was one of the thoughts behind Touch ID. … You can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it's a big opportunity." - Tim CookHowever, most analysts do not have payments factored into their earnings forecasts, certainly not in the upcoming one or two quarters. This is the growth opportunity that could re-value Apple from its current 16x P/E towards 20x.
A formal announcement that Payments have arrived in the iPhone 6 AND will as soon as two quarters out, it will force analysts to revise their earnings estimates. In fact, Apple would likely revise their own earnings guidance with an immediate pop to the stock, although I don't expect this to make a meaningful impact to EPS until 2016.
Risk: Upside. The market is currently split on the announcement of Payments, but is a high probability with the phones and wearable both to appear at the event.
Cover Glass: Gorilla Glass / Sapphire / Both ?
- Low to Moderate expectation that Sapphire launching in both phones
- Moderate to High expectation that Sapphire is launching one phone
- Full expectation that Sapphire launching in the iWatch (when it launches)
This brings the topic to another great trading opportunity going into the Apple event which is GT Advanced Technologies (GTAT).
Speculation has been flying ever since Apple inked a near $600M deal with GT Advanced Technologies to greatly expand Sapphire production. Is it for the wearable? A phone? Both phones? Eventually iPads too?!
GTAT stock doubled from November through April on the news, hitting a high around $20, but has been very volatile ever since as rumors of production problems led many analysts to state that supply constraints would hold back the material from being featured on both or even one iPhone in a September launch. There are also many who suggest the material isn't suitable for a large application such as a 5.5" screen, for reasons such as cost and weight.
One need only look at the 1 year chart to see how schizophrenic this stock has been as good news and bad news has circulated the stock-o-sphere.
Image Source: Google Finance (Sep 5 Close)
Shares sold short as of August 15 were 56M.... of 137M outstanding.
That's 40% short interest. This is a short squeeze candidate if I've ever seen one, which is likely why Piper Jaffray analyst Mike Ritzenthaler expects shars of GTAT to move 'sharply' on an announcement as he firm resumed coverage with an Overweight weighting and $23 price target.
With the price sitting around $17 this marks the middle of the $14 to $20 range we have seen since April.
Using price as the gauge, the market sentiment is split as to whether production issues have delayed Sapphire's implementation and how many devices will use the material.
I believe this mixed sentiment provides an opportunity for upside at the event, as there appears higher probability of the iWatch unveiling which alone will re-ignite imaginations and attention towards this name. The presence in one or both phones would be an even greater catalyst.
Risk: Upside to GTAT. There are three devices that can potentially feature Sapphire and with mixed sentiment, we only need to see one for confidence to return to GTAT stock.
Where are we now?
iPhone: Downside Risk. Market has fully priced the phones, with potential disappointment on pricing (or a delay of 5.5")
iWatch: Upside Risk.. The wearable is not fully expected by the market but recent news suggests it will be unveiled.
Payments: Upside. The market is currently split on the announcement of Payments, but has increased potential with the phone and now the wearable both likely to appear at the event.
Sapphire: Upside to GTAT. There are three devices that can potentially feature Sapphire and with mixed sentiment, we only need to see one for confidence to return to GTAT stock.
Some traders have already taken the conservative approach by taking profits leading into the event (evidenced by Apple's drop from $104 to $98) although there is certainly room for more selling. We all learnt this lesson from the 5C/5S launch, right?
I believe the current overall sentiment in AAPL high, but not extreme, while Apple is poised to finally unveil most if not all of the product categories investors have been clamoring for but do not expect to see all at once.
Apple is also yet to break its all time high market cap, which was roughly $655B at the highs in 2012 and would represent roughly $110 today (thanks to buybacks). Many have overlooked this fact.
Apple Suppliers and Competitors
Corning (GLW), which produces Gorilla Glass, has recently found support and some momentum and would likely benefit from hearing that Sapphire isn't ready for the new iPhones.
Image Source: Google Finance (Sep 5 Close)
Payments is good news for Apple, bad news for eBay (EBAY).
PayPal is the jewel in Ebay's crown and would likely see pressure if Apple Payments hits the headlines on Tuesday.
Image Source: Google Finance (Sept 5 Close)
There are many other Apple suppliers and competitors that will be impacted by news out of tomorrows event and that is likely to percolate over the coming months.
- Universal Display (OLED) likely iWatch screen supplier
- NXP (NXPI) likely NFC chip supplier
- Garmin (GRMN) manufactures several wearables
- BlackBerry (BBRY) ... who are they again? (Kidding, I am actually long BBRY for reasons to be left to another article)
Conclusion
The September 9 event is not just another iPhone launch event. The iWatch unveiling will be the first all new hardware product from Apple since the iPad in 2010. Payments will hit revenues sooner than analysts have forecast. Investors should remain long Apple and GT Advanced Technologies for the long term.
