INDUSTRY REPORT

Taiwan

Apple Insight

Key message
Even assuming zero shipments growth YoY of
the new iPhone models to be launched this
year, as compared to iPhone 6 and iPhone 6
Plus launched in 2014, related suppliers do
not need to worry about this issue as Force
Touch is a new business. Hence, they are our
top picks. In the supply chain, we recommend
investors keep tabs on Cheng Uei (2392 TT,
NT$44.9, OP), Zhen Ding (4958 TT, NT$92.2,
NR) and General Interface Solution (6456 TT,
NT$120, NR) mainly because they have higher
supply weightings of Force Touch in the first
three months of mass production.

iPhone 6S & iPhone 6S Plus could be first S-series models

to see zero shipments growth/ decline vs. predecessors
Event
We are conservative on consumption in China in 2H15F. If Force Touch fails to provide an
innovative user experience, shipments of the new iPhone models to be launched in 2015
(referred to by the market as iPhone 6S and iPhone 6S Plus) could be flat from or lower
than those of iPhone 6 and iPhone 6 Plus offered in 2014.
Impact
Weaker-than-last-year China consumption a concern for new iPhone shipments
momentum. China was the primary growth driver for iPhone 6 and iPhone 6 Plus
shipments in 3Q14-2Q15. Demand from China could be weakened YoY in 2015 due to
the stock market correction there, leaving shipments momentum of the 2015 new iPhone
models in doubt.
No killer application created by Force Touch as yet. Force Touch has already been
used in Apple Watch and MacBook without prompting strongly positive market feedback.
We are, therefore, not certain whether it can provide sufficient appeal to shore up
shipments momentum of the new iPhone models to be launched this year, though we
are positive on its potential contribution to the Apple user experience in the long run.
In 2014, iPhone 6 and iPhone 6 Plus shipments totaled 73mn units. We forecast
shipments of new iPhones to be offered this year at 65-75mn units. Previous models of
the iPhone S-series (iPhone 3GS, iPhone 4S and iPhone 5S) all posted significantly
stronger shipments growth in the year of debut than their respective predecessors.
However, if our assumptions materialize, namely weaker China consumption YoY in 2015
and Force Touch failing to hit the innovative spot, we predict iPhone 6S and iPhone 6S
Plus could be the first S-series models to see flat or lower shipments versus their
predecessors.
Stocks for Action
Even assuming zero shipments growth YoY of the new iPhone models to be launched this
year, as compared to iPhone 6 and iPhone 6 Plus launched in 2014, related suppliers do
not need to worry about this issue as Force Touch is a new business. Hence, they are our
top picks. In the supply chain, we recommend investors keep tabs on Cheng Uei (2392 TT,
NT$44.9, OP), Zhen Ding (4958 TT, NT$92.2, NR) and General Interface Solution (6456 TT,
NT$120, NR) mainly because they have higher supply weightings of Force Touch in the
first three months of mass production.
Risks
Component shortages for new products; poor market acceptance of new products.

Ming-Chi Kuo
886 2 2181 8742
mingchi.kuo@kgi.com
See last page for important disclosures.

August 7, 2015

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Taiwan

Apple Insight

KGI Locations

China

Shanghai

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Shanghai, PRC 201103

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Shenzhen, PRC 518008

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Telephone 66.2658.8888 Facsimile 66.2658.8014

KGI's Ratings

Rating

Definition

Outperform (OP)

The stock's excess return* over the next twelve months is ranked in the top 40% of KGI's coverage
universe in the related market (e.g. Taiwan).

Neutral (N)

The stock's excess return* over the next twelve months is ranked in the range between the top
40% and the bottom 40% of KGI's coverage universe in the related market (e.g. Taiwan).1.3

Under perform (U)

The stock's excess return* over the next twelve months is ranked in the bottom 40% of KGI's
coverage universe in the related market (e.g. Taiwan).

Not Rated (NR)

The stock is not rated by KGI Securities.

Restricted (R)

KGI policy and/or applicable law regulations preclude certain types of communications, including an
investment recommendation, during the course of KGI's engagement in an investment banking
transaction and in certain other circumstances.
Excess return = 12M target price/current price-

Note

Disclaimer

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those of other stocks in KGI's coverage universe in the related market. We will assign a rating based
on its ranking. If an analyst does not publish a new report on a covered stock, its rating will not be
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August 7, 2015

Institutional portal: http://research.kgi.com