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What 5G and iPhone 11 Sales Say About Apple Going Forward

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The world of smartphones continues to emerge from its doldrums, in what has been a positive few months for Apple (AAPL) - Get Apple Inc. (AAPL) Report specifically, according to several tech analysts. 

After analysts noted the positive sales and demand trends for the new Apple iPhone 11's a few weeks ago, two analysts published notes Monday morning increasing their forecasts on smartphone builds. The two notes highlighted two somewhat separate trends in the broader smartphone market. 

Apple shares were rising as much as 1.26%to $221.58 a share Monday, while the Nasdaq rose 0.3%. 

Smartphones in 2020

"We are increasing our 2020 5G smartphone estimates to 120 million from 50 million as the supply chain continues to indicate much higher 5G device sales, particularly in China, than we have been forecasting," wrote Goldman Sachs analyst Rod Hall. He said that manufacturing bottlenecks for 5G smartphone components are clearing up. While this is likely good news for Apple, Hall does expect Huawei to benefit meaningfully. 

Smartphone average selling prices are declining still, but at a slower rate than previously. While ASP's declined 3% year-over-year in the second quarter, Apple's ASP increased by 3%. That compares well against Samsung's (SSNLF) 8% decline, but poorly against Huawei's average price increase of 16%. 

Apple Current Quarter

"Our Apple iPhone calendar year third quarter build forecast increased to 47 million (+18% quarter-over-quarter) on higher XR demand while the fourth quarter build plan remains at 65 million," wrote Cowen's Krish Sankar. 

Sankar noted that the revised current quarter estimates build in estimates for the new iPhone 11 sales, and that the price reduction on the cheapest model may be acting as a meaningful tailwind to shipment volumes. This echoes similar sentiment from another analyst. "Especially with lower priced competition across the board, the price cut this time around was a smart strategy for Apple that is already paying dividends with many Chinese consumers looking at iPhone 11 as the right phone/price points," wrote Wedbush Securities analyst Dan Ives in a mid-September note. Ives expects strong iPhone upside "based on the initial demand trajectory out of the gates." 

Still, Sankar worries the ongoing trade war -- with tariffs on electronics coming into the U.S. from China still on the table for December -- could be headwind to iPhone sales in China, as Chinese consumer sentiment towards American products could be impacted. 

The overall positive tone on smartphones is likely a positive point for Apple as roughly 50% or more of its revenue still comes from the iPhone. Plus, selling a higher number of hardware products is only a positive for the growth of its services business. 

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