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Tom Forte, D.A. Davidson Managing Director & Senior Research Analyst, highlights the big announcements from Apple's event, including the unveiling of the new iPhone 13.
AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Tom Forte, DA Davidson managing director and senior research analyst. Tom, I'm looking at the stock move today, down about half a percent. You think investors are kind of meh about the whole thing? What did you think about the devices that were unveiled yesterday?
TOM FORTE: Sure. So as far as the stock goes, it's not unusual for the stock to run into the announcement for the next generation of products and then sell off shortly thereafter. Then the company reports the quarter, talks about how good the sales were for those new products. And then the stock starts to rebound.
My view is different to the extent that I feel like for the second year in a row, the star of the show is the 5G network, which is very early days in its buildout. I think Apple could just say, hey, we have a new phone. Oh, by the way, at some point in time, the network's going to be a lot faster. That new phone on a faster network is going to be a wonderful experience. So in that regard, I think the phones kind of sell themselves.
ZACK GUZMAN: Yeah, I mean, I guess, too, to that point, there's always the question of is it worth getting the 13 versus maybe getting a cheaper model 12 now? And maybe that's still a win for Apple, but I mean, you know, they had 5G in the last model. So how big, you know, are the other things when you look at what they added to the 13 here to maybe attract the upgrades?
TOM FORTE: I also think that this kind of touches on your comment on the 12, that the good news for Apple last year is that the carriers got behind the upgrade cycle and offered some very significant incentives to consumers to get them to use the new networks. I think that's going to be the same case this year. They were talking yesterday about carriers offering as much as $1,000 to get you into a new iPhone on their network.
So future wise, I agree with you. It's more-- better camera, faster processor, slightly smaller area on the coverage of the phone for the camera, things of that, very incremental changes. So to me, it's the network that's the real story here. And the good news is, it's going to take a while for it to get built out. So I think Apple is going to have positive unit sales for years to come.
AKIKO FUJITA: And Tom, the good news is we've got the features now of these devices. The question is going to be how quickly they can roll this out. We've seen a number of companies having to deal with supply chain issues. When you look at the launch dates and the expectations these markers that Apple has set forward are, do you think, number one, they're able to meet it? And what do you think puts Apple in a stronger position than maybe some other competitors?
TOM FORTE: Akiko, that's a great question. And what really impressed me yesterday was that they talked about it, I think it was the September 24th availability date for the new iPhones. And when you pointed out the prices, the fact that they're essentially offering them at last year's prices despite all the inflationary pressure, especially in logistics, I think that was a very important part of the announcement yesterday, the ability to get products quickly to consumers without having to raise price. So, clearly, Apple's doing a better job than most other companies, consumer electronics, and managing a very difficult supply chain right now.
ZACK GUZMAN: That's what we've heard from a few guests here in terms of maybe the importance of the iPhone, making sure that they were going to have everything there. But when you look maybe across the lineup of new things, there were some concerns maybe about the watch and running into issues there. I mean, what do you make of the rest of the offerings in terms of, A, how they impress, but then also, I suppose, to the same question Akiko asked there, chips and the pieces there that could hinder production?
TOM FORTE: Yeah, so good point, Zack, in the watch. That was the only one where they had kind of a to be determined for availability date. I do think that this is the first or second generation of Apple products that has Apple's own chips in them, which bodes well for the speed. Maybe that's also having a positive impact from a supply chain standpoint. But it does seem like from my vantage point, watching a lot of consumer electronics companies, that Apple is doing a better job of managing the supply chain than other companies are.
AKIKO FUJITA: Tom, there is a question about how supportive the sales from these new devices are likely to be to Apple stock. And on that front, I know a lot of investors also sort of still digesting the most recent court ruling in Apple's battle with Epic, which, you know, some would argue was a negative for Apple, largely because it said that Apple can't solely just take that 30% commission without allowing these developers to get paid elsewhere. How do you look at those two issues for Apple right now when you look at the stock price and how likely this ruling could hurt profits for Apple?
TOM FORTE: It's another great question. The way I think about it is this way. The Epic Games ruling hits Apple in a place where it hurts. High margin revenue that services revenue or non-hardware revenue was enabling the stock to have a higher multiple. So potentially, the loss of that by not having in-game purchases going through that 30% commission rate, that's very bad news for Apple.
The good news is that to the extent that their best product and most important product from a profitability and sales standpoint, the iPhone, I think is going to benefit from a multi-year upgrade cycle. Stronger iPhone sales could offset lost revenue from in-game app purchases. But I think that's an excellent point and something we're continuing to monitor.
ZACK GUZMAN: Yeah, so lastly, Tom, I mean, how do you kind of boil all that down to, I guess, figure out where Apple is going to go? Year to date, up 13%, had been one of those names that had caught some momentum here, as we saw people rotate back into growth. I mean, where do you see it shaping up in the price target you got there?
TOM FORTE: Yeah, so I still think there's a significant upside when you think of our price target. We're monitoring real-- two challenges for the stock-- the antitrust regulatory environment, especially as it pertains to their 30% commission rate in the App Store, and then the supply chain challenges. But yesterday, I felt much better given the release dates and the fact they were able to maintain price on a lot of the products.
AKIKO FUJITA: Tom Forte, DA Davidson managing director and senior research analyst, always great to have you on the show today. Appreciate the time.