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Wedbush Managing Director Dan Ives joined Yahoo Finance Live to break down how Japanese financial daily Nikkei reported Apple’ has decided to increase iPhone production for the first half of 2021 and what it means for the smartphone space.
- Let's drill down into one of the big movers today. It's actually leading the Dow higher, and that is Apple with Apple shares up just around 4 and 1/2 percent, than a half an hour to go until the trading day closes. The Nikkei Asia out with a report saying that Apple is aiming to up its iPhone production by 30% for the first half of 2021. We want to bring in Dan Ives of Wedbush for a little bit more on this.
And Dan, I know you've been extremely bullish on Apple. You're very excited about the iPhone 12, calling it a super cycle. How does this report today compare to your expectations and what you're seeing so far?
DAN IVES: Yeah, I mean this is pretty much in line with what we've been talking about the last few weeks from our Asian checks as our team has sort of gone across Asia from a supply chain. And I continue to believe this is the strongest product cycle that Cupertino has seen in the last decade. And I think when you look at what Nikkei is reporting, it just further solidifies that supercycle thesis. And I think bull case, we could be looking at 240 million iPhone units next year. China, linchpin, and I think this continues to see a stock. I think 160 base case, 200 is bull case.
- Dan, I want to read very quickly from your quick note this morning, because it's not just this year and next year, rather, that we're looking at. There's strength here, importantly, with our estimation that 350 million to 950 million iPhones worldwide are currently in the window of an upgrade opportunity. If I'm an investor and I read that, I'm thinking that Apple really has a long runway here for growth.
DAN IVES: Well, you just hit the nail on the head. And I think that's why this is a stock still in the middle innings of rerating and, I think, moving higher, because it's why it's a supercycle. 40% of the install base hasn't upgraded their iPhone in 3 and 1/2 years. You go back last year, that's 30%, two years ago, 25%. Pent up demand, especially in China-- that's the key. And then the one-two punch with services and just the overall flywheel for Apple-- I mean that, to me, is why this is a stock just, I think, in that sort of middle part of rerating.
- Dan, do you look at the importance of China there? And I know you mentioned earlier that China is a linchpin here to Apple's 5G supercycle. When you talk about the percentage, though, of these upgrades and how important China is, what percentage do you see coming from Asia? And I guess what's the potential growth there going forward?
DAN IVES: Yeah, look, China's 20%. And that's why China is such a linchpin to the overall bull thesis, because you look right now. We think 60 to 70 million iPhones in China alone are in a window of an upgrade opportunity. And despite competition, that continues to be the core part of success. And you're also seeing the Pro models see the success on iPhone, higher ASPs. That's why I think, ultimately, you could see street numbers move up another 5% to 10% going into next year, combined with a further rerating on the services. That's how you get to a stock that I believe is north of 150.
- Dan, let me shift gears to the other quick note that you had today. And that had to do with the cybersecurity attack on, you know, major United States infrastructure institutions. And one of the things you point out-- this would be a silver lining-- is that there's a $200 billion growth opportunity for iCloud security. Help us understand why there's opportunity there and who-- who we invest in or look at for that opportunity.
DAN IVES: Yeah, look, I can tell you, in 20 years covering cybersecurity, this could be, you know, unfortunately, one of the worst attacks we've seen, especially within the beltway. I think there's-- the scale and scope still need to really be better understood, but the silver lining is it just shows as more government and enterprise move to the cloud, it's a massive opportunity for cybersecurity. $200 billion up for a grab over the next five years as more move to the cloud agencies and enterprises.
And that's why some of our favorite, Zscaler, or you look at names like CrowdStrike Varonis, I mean, those are front and center as ones that continue to benefit here, along with companies like Tenable that focuses more and more in the government. I think it just shows the more move to the cloud, the more you need to protect it. And this is just an unfortunate reminder of the threats that our nation [? state ?] [? attacks. ?]
- Dan, looking at this and just talking about how we are at risk for possibly more of these types of attacks here going into the future, do you think we've realized the scale and the scope of this attack yet at this point, or could it potentially be much larger than even what we know at this point?
DAN IVES: Oh, I mean, I think this could be much larger. I could tell you from a lot of industry contacts that we talk to, there's a lot of nervousness around this attack in terms of just the sophistication level and the weaponization level that you saw in this attack. And, of course, FireEye, which I've used. Most of the Navy SEALs in cybersecurity is on this. But, you know, I think what it does, it just speaks that-- you look at-- think about in the government. You have JEDI, DOD going to cloud, biggest cloud deal ever along with Microsoft. That's going to be more and more focused on cybersecurity. You're seeing that across agencies and across enterprises.
And that's why, you know, as they go into next year, one of our favorite sectors is cybersecurity, just given the massive trends that we're seeing across the board. And I think this is just another reminder of those threats.
- Dan, talking about those threats and how-- not that China played a role in this, but we were just talking to Leland Miller last block about the US and China relationship when it comes to attack, how important that is, what that means here going forward. And I know you've done a lot on this. You've written several notes on this. When you take a look at what we know at this point from the Biden administration, what we can expect here going forward, and what impact that could potentially have on some of these big tech names, on some of these cyber names, how are you currently looking at that?
DAN IVES: Yeah, I think once-- once Biden got elected, that basically took what I view as the US China Cold Tech War and threw it out the window. Ratcheting down of tensions, bullish for Apple, bullish for semiconductor companies, and I think it's important. And I think it's also part of a lot of the conversations I have with investors. It's more of a risk on trade in terms of what you're seeing across the tech stratosphere with semis and Apple front and center, because you start to see a ratcheting down of the tensions, that was probably one of the biggest risks, along with antitrust, toward tech.
And I'd say with the lack of a blue wave, that antitrust worries continues to be there, but maybe not as pronounced as if we had some of the changes in Congress. That's-- right now, this continues to be a Goldilocks situation in the beltway for big tech. And I think when you look at the US-China situation, that's really playing a major role I think in terms of these multiple reratings in tech.