VIDEO: Why Channel Checks Only Tell Half the iPhone Story

In today’s Pro Portfolio Daily Rundown Video, Chris Versace uses Apple’s AAPL “Glowtime” event and Taiwan Semi’s TSM robust August sales report to explain why sell-through is as important as supply chain channel checks for Apple’s iPhone upgrade cycle. 

"This is when customers come in, buy the goods off the shelves, forcing a reorder, a restocking that keeps ... the supply chain going," he explained. "From our perspective, when it comes to Apple and keeping a read on the supply chain and ongoing demand ... we have to be aware of the sell through."

Chris also reviews comments made by Goldman Sachs GS at an investor conference on Monday and explains why we’re closely watching this Portfolio holding. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Tuesday, September 10th, and we have what's looking so far to be a rather mixed market following yesterday's move, higher, still. So far for the month of September, it is one that is in the red for the overall market. And in our opening comments this morning, we did discuss with you some expectations or lack thereof for the presidential debate that will be tonight.

We also talked about the market's rather eh reaction to Apple's glow time event, which if you read our alert yesterday, you know that's pretty much what we were thinking, raising the question about the upgrade cycle and whether or not really robust trade-in values for older iPhone models can drive it. And at the same time this morning, we also had some comments that we shared with you coming from Oracle, as well as AT&T that were very bullish, supportive, call it what you will for our positions in Nvidia and Marvell.

So with that, I do want to spend a few minutes in today's video really talking about two particular things. First, Taiwan Semi's August revenue, which was stellar, and second comments made yesterday by Goldman Sachs at an investor conference. So again, starting with Taiwan Semi's August revenue came in up 33% year over year, down ever so slightly compared to July, but July was a record month.

And we kind of take a look at the trailing three month data, get rid of some of the noise-- it tells us that it is shaping up to be a very record quarter for Taiwan Semi that speaks volumes for data center and other aspects of high performance computing, but also adds another layer of support for the ramp in the supply chain for smartphones-- and including Apple's iPhone-- PCs, networking equipment, all of that. All in all, if we were to look at what Taiwan Semi put out this morning, we would say, man, that is very supportive, constructive for our positions in Nvidia, Marvell, Apple, Qualcomm and Universal Display.

But we do have to think about our comment that we shared with you yesterday about the Apple upgrade cycle. And I want to talk a minute about the difference between sell in and sell through. Why? Because it's important. When we think about sell in, think of a company that is selling its product to two retailers, putting it in its own stores, kind of initial stocking.

That's good for the supply chain. They're ramping to meet that demand. But we also have to pay as much, if not more attention to what is called sell through. This is when customers come in, buy the goods off the shelves, forcing a reorder, a restocking that keeps the strength in the supply chain going.

When you talk about smartphones in particular, you'll hear some of the key suppliers talk about sell in versus sell through. From our perspective, when it comes to Apple and keeping a read on the supply chain and ongoing demand-- I understand people want to talk all about channel checks and supply checks and all that stuff-- I do, too, but we have to be aware of the sell through because if these are not flying off the shelves it means there may not be any reorders. It runs the risk of some inventory building in the supply chain. That would be a flag.

So as we go forward, recognizing that Apple is only now taking orders for its new products and they will start hitting the shelves on September 20th, soon thereafter, we're going to want to pay very close attention to any type of comments that we get from mobile carriers, T-Mobile, Verizon, what have you. We'll also want to hear from retailers like Best Buy. What are they seeing in terms of demand, and are they having to restock their shelves?

Typically when Apple has a new product out, it tends to, past a certain point, put out a press release that they've sold out. Great for the first wave, but again, it's the ongoing sell through and continued reordering that we want to monitor, especially this time around. Because in my view, and it appears most of Wall Street, the staged approach for Apple intelligence didn't really create any wow factor, any buzz, so we're going to have to rely on these rich trade-in values for older iphones to kind of spur a near-term upgrade cycle for the iPhone 16, iPhone 16 Pro, iPhone 16 Pro Max. So that's what we'll be watching.

The second comment gets to what Goldman Sachs said yesterday at an investor conference. There are really two things. First, they kind of warned about its trading volumes being down year over year. One, tough comparisons year over year. Trading volumes this time last year were very vibrant.

August was kind of a subdued month for trading volume. And again, we're in the current month, which can be volatile and can be good for trading volumes, so we'll have to continue to watch that there. But the second comment Goldman made is that dealmaking activity continues to improve and that supports an alert that we shared with you last week when we upgraded the shares of Morgan Stanley to a one rating.

Now, on top of all of this, we're also reading today that bank capital requirements could be a little smaller than were previously thought. During a lot of Fed Chair Powell's policy press conferences, there's always the question about bank capital requirements, and it's been something that they've been reviewing, working with other agencies and it appears that they're going to settle in on something closer to 9%, way less than the 19% that they originally proposed in the plan. So that would be a very big positive for banks in general, give them a lot more leeway with their capital, either for dividends, buybacks, or some other things.

We're thinking about this as it relates to Morgan Stanley. As I just said, we upgraded the shares last week to a one and they're flirting around the levels at which we said we might be interested in picking up some more shares. So they are very much on our radar screen.

What we want to hear first and second are are these two things. First, later today, Fed Chair for Supervision, Michael Barr is going to give a speech in which he previews some of these changes for the capital requirements. So we'll want to hear exactly what they are and kind of flesh them out.

Second, in addition to Goldman Sachs making the rounds, we want to hear from any other investment banks to see if perhaps there might be some share shifts that are happening when it comes to trading volumes, but we'll also want to hear other perspectives on the investment banking landscape, really looking for confirmation that it continues to improve. But remember, remember, the reason that we pulled the trigger and upgraded Morgan Stanley was not just the improving landscape for investment banking activities, M&A, IPOs, but it's because it was named in that mega deal announced recently by Verizon. It was a named advisor, that means it should be collecting some pretty fat fees from that transaction.

So as we collect these comments from Barr and any other investment banks that are making the rounds, I would ask please be sure to continue to check your comments. Sorry, your comments-- I want to make sure you get my comments, so please make sure that you check your alerts, your emails. We want to make sure you're getting our latest thoughts and comments. And if we happen to make any moves with the portfolio, we want you right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long AAPL.