AAPL: From Long to Short

We have reversed our Apple position from being one of our larger long positions in August to being one of our larger short positions currently.  We see upcoming iPhone 13 launch as being evolutionary with some slight changes to the notch size, battery life and camera. This follows the revolutionary 5G launch last year.  Also iPhone launch prices will likely go up relative to last year from inflation in the underlying components like semiconductors.  As a result, we believe sales in the second half of the year are likely to be disappointing as consumers retrench from pandemic driven sales last year.

Apple has been a big beneficiary from work/learn from home trends since the pandemic.  Both Mac & iPad sales were down year over year in the December quarter of 2019 before covid but were up over 70% in CQ1 of this year driven by learning from home.  iPhone sales were down in 4 of the 5 quarters prior to Covid but were up 66% in CQ1 of 2021 driven by work from home and the launch of 5G phones.

iPhone revs in FY2020 (September FY end) were 11% below FY2015 levels given incremental improvements led to lengthening replacement cycles.  As a reminder, global smartphone units were down for 4 years in a row prior to 2021. Global penetration of smartphones is high at ~50% at nearly 4B users versus an installed base of 1.5B PCs for comparison.  Meanwhile smartphone replacement cycles were lengthening prior to Covid as changes were incremental driving this decline in units.  In addition, we expect pressure on Apple’s App Store revenues given the recent EPIC lawsuit results and regulatory pressures globally on App Store commissions.
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Technically, investors have also had a tendency to “buy the rumor and sell the news” when it comes to Apple product launches.  Looking at data going back nearly 20 years, from a technical basis, Apple is typically up about 3/4ths of the time in the month leading up to their product launches but is down 3/4ths of the time the day of the event.  The stock also is roughly flat for the two weeks following the product launch before starting to climb again.