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The Ratings Game: Apple will receive ‘preferential treatment’ in supply crunch, analyst says

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Apple Inc. shares fell slightly Tuesday after a report indicated the smartphone giant is poised to cut iPhone production orders due to component shortages, but one analyst views supply-chain pressures as a buying opportunity.

Morgan Stanley’s Katy Huberty sees several reasons why investors should “buy the dip” amid global supply woes, even after Bloomberg reported late Monday that Apple
AAPL,
-0.63%

may lower its 2021 iPhone 13 production targets by up to 10 million units. While Huberty hasn’t “specifically heard of material iPhone production bottlenecks due to semiconductor shortages” at Broadcom Inc.
AVGO,
-0.25%

or Texas Instruments Inc.
TXN,
-0.78%
,
she acknowledged that broader supply woes are a “real issue” across markets.

Still, she’s upbeat about Apple’s prospects, writing in a Tuesday note to clients that the smartphone giant has outperformed revenue expectations so far this year, something that’s “consistent with [Morgan Stanley’s] supplier checks that Apple receives preferential treatment during periods of supply tightness.”

If Apple struggles to meet demand in the short term, its rivals will likely have an even tougher time, Huberty continued, presenting a chance for Apple to win market share.

She also argued that “demand isn’t perishable” for Apple. The company has strong customer loyalty, in her view, which could help push iPhone demand into later quarters even if Apple faces constraints in the coming months.

Opinion: Apple’s iPhone 13 upgrades are boring, but they will still sell

“In conclusion, should [Monday’s] Bloomberg report prove accurate, even just directionally, we’d expect the quarterly cadence of our iPhone shipment estimates to change, but expect little change to our FY22 annual iPhone shipment forecast of 238.5 million units,” wrote Huberty, who has an outperform rating and $168 price target on Apple’s stock.

Apple didn’t immediately respond to MarketWatch’s request for comment on its reported plans to cut production orders. Shares were off 0.7% in Tuesday trading, and have lost 3.5% over the past three months as the Dow Jones Industrial Average
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declined 1.5%.

Bank of America’s Wamsi Mohan took a less upbeat view of Apple’s stock, writing in a Tuesday note to clients that he sees a “balanced-risk reward” profile for the shares. Mohan expects that Apple will deliver September-quarter revenue that’s $4 billion to $5 billion ahead of the consensus view, but argued that “constraints could more meaningfully impact the December quarter,” for which he anticipates below-consensus revenue.

“Beyond supply constraints, we are also concerned about the demand headwinds as U.S. stimulus benefits abate, China slowdown impacts sell-through and people push out upgrades for the next iPhone,” he continued. Mohan observed that iPhone availability might be stronger in stores than online status updates seem to indicate, “which gives us pause on the strength of the demand.”

Mohan has a neutral rating and $160 price target on the shares.

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