China Hardware Technology:Preview of iPhone 8:All eyes on OLED iPhone demand

iPhone 8: 3D sensing, wireless charging, OLED, glass casing.

    Apple is scheduled to hold its annual product launch event on 12 Sept (US time). We forecast Apple to launch 3 new iPhones (two iPhone 7s, OLED iPhone 8 and upgraded Apple Watch. In particular, we expect all three iPhones to upgrade to 2.5D glass back cover, fast/wireless charging and enhanced acoustics (waterproof/stereo), while only OLED iPhone 8 will adopt 3D sensing function, OLED display and dual-OIS rear cam. We expect strong upgrade demand for iPhone 8 given lack of major spec changes in the past two years, but pricing/user experience of OLED iPhone 8 will be the key factor for shipment/ASP mix due to higher BOM cost and production constraints. We estimate 50%+ shipment mix for OLED iPhone.

    Prefer content growthnames: AAC, FIT, Tongda, and Cowell We expect AAC (~50% sales from Apple) to secure its major supplier status in advanced acoustics (55% vs 40%/10% for Goertek/ Merry) and haptics (55% vs 50% for Nidec (6594 JP) and Alps (6770 JP)). We also believe FIT will be the major supplier for iPhone’s fast/wireless charging solution, driving its mobile segment growth of 100%+ in 2H17E. Following order win of Apple’s waterproof components in 2H16, we believe Tongda will benefit from share gains with ASP upgrade in FY17E, generating 10% of FY17E revenue from Apple (vs 2% in FY16). For Cowell (85% FY17E sales from Apple), we expect front-cam miniaturization for OLED iPhone to result in 20% ASP hike in 2H17E.

    Accumulate on potential correction following launch Following 40%+ YTD rally of Apple supply chain, we expect high profit-taking pressure right after product launch. However, we believe iPhone’s accelerated installed base and new features/ form factor in iPhone 8 should bode well for a strong replacement cycle in 2H17E. Therefore, we recommend investors to accumulate on any correction for selective Apple plays. Our top picks are AAC for content growth in acoustics/haptics, FIT for fast/wireless charging, Tongda for share gain/ ASP hike in waterproof components, and Cowell for front-cam miniaturization.