Apple’s next generation laptops are ‘more important’ amid pandemic: Analyst

Yahoo Finance’s Alexis Christoforous and Tom Forte, D.A. Davidson Sr. Research analyst, discuss Apple’s latest product launches.

Video Transcript

ALEXIS CHRISTOFOROUS: Tom Forte, he is Senior Research Analyst at DA Davidson. So Tom, I know you were listening in on what Dan Howley had to say as well. I’m sure you also watched Tim Cook at that virtual event. Did these new products, with the homemade chip from Apple, live up to expectations, do you think?

TOM FORTE: Sure, so I would say at a normal year if you were to rank most important product to least important product, the iPhone would be at the top of the list, and that was definitely the case this year with a 5G iPhone for the first time. But when you think about Logitech talking about how you have a billion consumers working remotely and another billion consumers learning remotely, so really kind of the COVID-19 impact for Apple is that sales of their laptop and desktop devices have seen a massive improvement. So to the extent that you have faster speeds, the functionality that Dan highlighted that I thought was the most interesting is the app functionality. So think about having the ability to have your iPad and your iPhone apps on your laptop. I think that’s important.

And then when you think about faster speed, you think about faster gaming, and you think about better video. So again, historically, the iPhone would be most important. It’s still the most important this year, because it’s a new 5G device, but with a billion consumers working remotely and learning remotely, their new next generation laptops are more important than they’ve been in the past few years, and it does sound like they’ve made some important improvements there.

DAN HOWLEY: Tom, I want to ask you, and you say that they’re the most important potentially products that Apple has announced this year, the M1 chip in particular. I guess as far as, you know, Apple’s future goes, does this mean that, you know, we’re going to see a bigger push out of them for their laptops, for the MacBooks? And does the idea that they’re able to handle apps from iOS and iPad OS make them more valuable than before, simply because there’s millions of apps that they just didn’t have access to that now they do?

TOM FORTE: Sure, so I definitely think that the integration from an app standpoint is something that Apple will focus and market. And again, to the extent that they now have their own chips that Apple basically found an opportunity to be more vertically integrated by making its own chips rather than relying on Intel to the extent that they’re able to prove that the speed is materially faster, that the battery lives longer, and as you made the comment with the fans, that they’re much quieter, than that may get Apple interested in perhaps vertically integrating more of the components to their devices longer term.

ALEXIS CHRISTOFOROUS: I want to switch gears here for a moment and talk about this antitrust lawsuit that Apple seems to be facing. Now, there are shareholders who claim they lost billions of dollars because Tim Cook failed to warn them of falling demand and sales in China. This actually goes back to a 2018 earnings call where Cook said that Apple was seeing what he described as sales pressure in some markets, but then he stated, quote, “I would not put China in that category.” Well, those investors are now being given the green light to go ahead with a class action lawsuit. Do you think that might trip up Apple here at all, or are you concerned as you cover the stock?

TOM FORTE: So that was a turning point for Apple, because I think it required the company to focus their attention on essentially the remainder of their portfolio outside of iPhones. So I think to the extent that they did really well with services and with tablets and laptops, that’s what enabled the stock to essentially double from that low point following the surprise earnings preannouncement on the weak sales in China. So it’s hard to argue with the stock’s performance afterwards, and I would argue as a turning point, because it really motivated Apple to broaden its horizons, focus less of its efforts specifically on the iPhones, and they’ve done remarkably well, and their stocks done remarkably well as a result.

DAN HOWLEY: Tom, I want to ask kind of back to the Apple announcements in Big Sur and the Rosetta 2 that Apple had just announced. I guess, you know, when you look at Apple’s future, they seem to be combining all of these different disparate products they have, as far as the, you know, compatibility between them all. At some point, do you think Apple will really control all parts of its ecosystem and hardware ecosystem just to show that it can operate independently and then have that kind of control to be able to take whatever it wants to as far as the products go in the future?

TOM FORTE: So excellent question. So an argument can be made from a functionality standpoint. There would be a desire for Apple to do so. But I think that they’re also looking at from a financial standpoint and saying, what are the opportunities we have to become more vertically integrated that make financial sense? Chips was one of them. And then at one point, there was a question, would Apple then offer its own chips to other computer manufacturers? And I guess that remains to be seen. So I think that they still have, I guess, a financial hurdle in addition to the functionality hurdle that they’re deciding on when to offer additional services and integrate their disparate offerings, as you pointed out.

ALEXIS CHRISTOFOROUS: Tom, are you concerned at all about supply chain and about Apple being able to meet demand now that it is in control more of its destiny with its own chips? Are there any concerns out there that maybe they won’t be able to keep up? This is something new for them, manufacturing these chips at this scale, and with so many new products they’re going to be going into.

TOM FORTE: So one would argue that the reason Tim Cook is the Chief CEO of Apple is given his excellence with supply chain and all his efforts in that regard. So it’s hard to envision that this is going to be a stumbling block for the company. The question is, with what appears to be a change in leadership in the US, what will the US relationship with China be like going forward? So if you think about the four years of President Trump, you’ve had tariffs, you’ve had kind of a long prolonged trade war between US and China, which has caught Apple in the middle with about 15% of their sales to Chinese consumers and many of their products still assembled in China. So will we have a change in US policy with a new president, and how will that impact Apple’s supply chain? And at the minimum, it seems like there’s a lower likelihood of tariffs, which should be good for Apple in that regard.

ALEXIS CHRISTOFOROUS: Investors will be waiting and watching. Tom Forte, Senior Research Analyst at DA Davidson, thanks for being with us.

TOM FORTE: Thanks for having me.