35 of Apple's parts suppliers are ramping up shipments, suggesting Apple is expecting an iPhone "supercycle" akin to iPhone 6.
Sales and shipments at 35 of Apple's parts suppliers are already ramping up, according to a survey of those companies by Longbow Research. The information suggests — when coupled with search data from Google — that Apple is expecting a "supercycle" for iPhone X, iPhone 8, and iPhone 8 Plus. The supercycle theory suggests many iPhone users have phones that are more than two years old, and they will upgrade en masse for the new phone in a huge wave, akin to the experience with iPhone 6.
There has been a debate among analysts over whether the supercycle will happen or not. Some, like the team at Deutsche Bank, believe this year's sales will be relatively subdued. Others, like BMO Capital Markets' Tim Long, believe that Apple's "installed base" of existing customers will push iPhone X/iPhone 8 to new highs.
In a note to clients, Longbow analysts Shawn Harrison and Gausia Chowdhury said they looked at 35 Taiwanese companies that are part of Apple's supply chain, and noticed a 0.84 correlation between sales at those companies and sales of the devices they make for Apple:
"August sales of 35+ of AAPL’s Taiwanese suppliers grew +5.4% sequentially and +6.6% year over year or 110-400bp better than the 3- year avg. of +4.3% and 5-year avg. of +1.4%. July and June were also better than seasonal. July sales grew +10.6% year over year, but decreased -2.1% sequentially or 90-290bp better than the 3-yr avg. of -5.0% and 5-yr avg. of -3.0%. There is correlation (R=0.84 and R2 = 0.71) between the quarterly sales of AAPL’s Taiwanese suppliers and AAPL’s quarterly sales ex services."
That's easier to understand when you see the chart:
In sum, Apple's orders to its suppliers seem to exceed the demand for iPhone 6s and iPhone 7, Longbow is saying.
In a separate note dated September 8, Harrison and Chowdhury said, "The cycle looks favorable, initial launch volumes are up 10-15% year over year per Longbow’s checks, and AAPL’s next-gen iPhones could drive substantial upgrades generating upside to consensus shipment forecasts given numerous new features and potentially interesting AR attributes."
The notion that Apple is anticipating a return to robust growth is bolstered by consumer search activity. Search interest dropped off dramatically for the last two iPhones, according to data tracked by Longbow. But it has recently shot back up again to a level not seen since iPhone 6:
Longbow estimates there is a 65% correlation between iPhone shipments and search trends.