While the latest iPhone launch could mark a turning point for the broader smartphone supply chain, CIO remains somewhat cautious and suggest a selective, tactical approach. (UBS)

A new pricing mix will also mean consumers pay moderately more for its most premium model in the US.

The backdrop to this launch has been an enduring slump in global smartphone demand and some uncertainty over Apple's market access in China.

Without taking any single name views, we outline several ramifications for global investors:

Smartphone sector declines may have finally hit a bottom. The global smartphone industry's challenges are not yet over, with year-over-year unit declines continuing in the third quarter amid weak demand in emerging markets (including China). While we are not projecting a significant rebound for the sector, the mainstream arrival of periscope lenses and other new technology could bolster component makers. We anticipate the third quarter of this year will mark the low for the supply chain, especially if a macroeconomic recovery in Chinese consumption materializes as we expect.

Supply chain beneficiaries can benefit from the premium upgrade cycle. While we are not exceedingly bullish on Apple's supply chain in the medium term, we do see tactical opportunities on a 3–6-month basis in select smartphone component suppliers. These companies should benefit from higher margins and better seasonality in the fourth quarter. While the length of the average upgrade cycle for premium handset users across the industry has lengthened, a sufficient base of holdouts still using older models should spur demand.

US-China tensions are not fading for tech investors. Prior to the launch, negative reports on access to the Chinese market drove Apple’s market capitalization down by around USD 190bn over just two trading days— a sum comparable to the market cap of the eleventh largest company in the Euro Stoxx 600 index. Separately, a chip breakthrough in Huawei’s new Mate 60 phone has boosted Android supply chain firms and reinvigorated US calls to tighten export restrictions.

Both developments suggest tougher competition ahead in China’s domestic smartphone market and near-term risks of shifting rules or restrictions. That said, we think the likelihood of more targeted measures in China is somewhat tempered by macroeconomic headwinds and domestic employment considerations.

So, while the latest iPhone launch could mark a turning point for the broader smartphone supply chain, we remain somewhat cautious and suggest a selective, tactical approach. US-China tensions remain a risk to watch, albeit most likely a manageable one. We would consider double-digit declines in select quality global supply chain names as a potential buying opportunity.

Within the tech and internet sector, we think software stocks are best positioned for the next phase of the technology cycle, and we suggest investors consider select laggards that have scope to catch up with the broader market.

Main contributors - Solita Marcelli, Mark Haefele, Sundeep Gantori, Jon Gordon, Delwin Kurnia Limas, Allen Pu, Bennett Chu

Original report - Could new iPhone launch mark a smartphone supply chain turn around?, 13 September 2023.