help yourself. Next week, the tech sector is headed for A-grade harmonic convergence, with three major news items that could change the dynamics of the tech sector in surprising and unexpected ways.
Each event carries potential payouts for investors along with significant risks.
Another phone: On Tuesday, Apple (ticker: AAPL ) will hold its annual fall launch event, dubbed this year “Wonderlust.” The event will certainly focus on the debut of the iPhone 15. (Analysts also expect new Apple Watches and upgradeable AirPods.) No one expects a major iPhone overhaul — the most significant change could be a lightning shift from Apple’s ownership. Connectors with the widely used USB-C standard. There will be updated processors, improved cameras, thinner bezels and a few other tweaks. The price is expected to be higher than the iPhone 14 levels. Bulls expect iPhone sales to pick up from customers replacing older phones — Wedbush analyst Dan Ives estimates that a quarter of the 1.2 billion iPhone shipment base is at least four years old.
But there are reasons to worry. Consumer spending is not very strong, and cell phone sales have been softening for several months. According to Counterpoint Research, global smartphone shipments fell 9 percent in June from a year earlier. Meanwhile, Apple faces a double whammy in China, where the new Huawei Mate 60 Pro smartphone is apparently being shared by Apple. To make matters worse, The Wall Street Journal reported last week that China has banned iPhones and other foreign-branded phones from being used by government officials.
Morgan Stanley analyst Eric Woodring argues that the 6% slide in Apple shares on China fears is overdone. But he notes that the market’s worries go beyond the fate of the iPhone 15.
“China could be on the way to further nationalization, a move that could threaten more than $30 billion in operating profits, if China decides to limit Apple’s access to the Chinese market,” Woodring wrote. Apple sees that dire outcome as unlikely given its significant role in the Chinese economy. Tuesday’s launch won’t fix anything, but it will put a lot of emphasis on the pace of sales in the pre-run.
arm race;
SoftBank Group
(SFTBY) bought chip design firm Arm Holdings in 2016 for $32 billion. In the year In 2021, SoftBank agreed to sell Arm
Nivea
( NVDA ) for $40 billion in cash and stock, before the deal fell apart under regulatory scrutiny. SoftBank immediately began planning for an initial public offering. This past week, ARM set a price range of $47 to $52 for the pending deal, which would imply a valuation of around $50 billion. The IPO is expected to price Wednesday night, with Arm trading on the Nasdaq starting Thursday.
Softbank’s valuation expectations are high. Arm’s revenue was flat last year, at $2.7 billion. The upper end of the price range shows earnings estimates nearly 20 times higher than any other tech company. Arm is getting priced in line with artificial intelligence giant Nvidia, but without its growth. It’s stretching.
And there’s a wild card: China’s greater role in ARM’s destiny. ARM is more dependent on China than Apple, accounting for 25% of its revenue. China-related risks take up three full pages in Arm’s IPO prospectus.
There’s no question, Arm is an important player in the global chip market – almost every smartphone uses an Arm-designed chip. There is a long list of tech companies – Apple, Google, Intel, Nvidia,
Samsung
,
And
Taiwan Semiconductor
-I am interested in buying IPO shares as per ARM prospectus. But Arm China’s exposure could also be a distraction for investors. The bigger risk is that a poor IPO showing could prevent other tech companies from going public this year.
Seeking Justice: Three years ago, the Department of Justice sued Google
Alphabet
(GOOGL) division has an illegal monopoly in the Internet search market. The case went to trial Tuesday in federal court in Washington, DC. In its 2020 complaint, it alleged that Google used “anti-competitive tactics” to maintain and extend its monopoly over Internet search and search advertising. Google called the lawsuit “deeply flawed.”
One key issue during the trial may be Google’s long-standing position as Apple’s search provider for the iPhone and Safari browser. Any attempt to break the bond may prove useful.
Microsoft
,
which powers the Bing search engine. How funny is that?
Another option is to force the court to end the exclusive relationship between Apple and Google, which has prompted Apple to develop its own search engine. Now that’s a really big story.
Write Eric J. Savitz at [email protected]
