We’ve been tracking lead times of four key Apple products in 13 countries since mid-February 2020 and recently found supply has improved over the past two weeks.
Recent Changes to Availability
- iPhone (~52% of revenue) supply, as measured by the lead times of iPhone 11 64GB and iPhone 11 Pro 64GB, is now (March 17) an average of 2.0 days compared to a peak of 6.7 days on March 4.
- AirPods (~4% of revenue) supply, as measured by AirPods Pro and AirPods 2nd gen lead times, is now (March 17) an average of 7.4 days compared to 10.6 days on March 4.
Do Lead Times Improve Because of Better Supply or Less Demand?
The simple answer is it’s impossible to know. Our guess is the majority of the lower lead times are related to the restart of production in China, and a minority of the improvement is from softening global demand.
We’ve tracked online lead times for Apple products over the past decade, sensitive to the reality that drawing insights from the data is tempered by the unknown supply, demand dynamic. Despite the shortcomings of the method, historically, it has been a useful tool. For example, following an iPhone launch, longer lead times has been an accurate measure of higher demand. The opposite is also true, the least successful iPhone cycles have been telegraphed by shorter lead times.
In the case of the supply of Apple products over the past month, the key variable was the closure of manufacturing and assembly in China. In the days following Apple’s announcement that the March quarter would be below expectations on February 17, we saw lead times extend. In the days following reports of the restart of manufacturing in China, we’ve seen lead times to improve.
The bottom line; even though interpreting lead times is not a science, it still provides useful insights.
Our Apple Investment Thesis Intact
In the face of upcoming downward revisions of the Street’s Apple estimates, we continue to believe Apple is a must-own name. Our long-term thesis is strengthened by a belief that Apple will come out of this period stronger, given some less-capitalized companies will exit with compromised balance sheets.
Our long-term view is unchanged. Apple’s combination of hardware, software, and services yields a competitive advantage not fully reflected in Apple’s earnings multiple and ultimately share price. Additionally, the upcoming rollout of 5G will be a 3-year boost to iPhone revenue, and the wearables, healthcare, and augmented reality themes will be foundational to expanding Apple’s addressable market over the next decade.