Morgan Stanley: 618 boosts Apple's sales in China, Q2 revenue may increase by $4 billion

According to Zhitong Finance APP, Morgan Stanley released a research report maintaining an "Overweight" rating on Apple (AAPL.US) with a target price of $235. The bank stated that thanks to the promotions during China's 618 shopping festival and national subsidy policies, Apple's sales of iPhones and iPads in the second quarter exceeded expectations, which is expected to bring up to $4 billion in revenue growth for the quarter. This positive trend suggests that Apple's stock price may receive support in the short term, especially as its valuation approaches a two-year low.

The report pointed out that iPhone and iPad sales in the Chinese market have shown strong performance for three consecutive weeks, driving Apple's second-quarter shipments above expectations. Specifically, the second-quarter iPhone production is expected to reach 46.5 million units, a year-on-year increase of 19%, up from the previous expectation of 45 million units; iPad production is expected to be 14.5 million units, a year-on-year increase of 38%, higher than the previous expectation of 13 million units. Based on the historical seasonal relationship between production and shipments, Morgan Stanley expects second-quarter iPhone shipments to reach 49 million units, 7% higher than the bank's expectation of 46 million units and 8% higher than the market consensus of 45.2 million units; iPad shipments are expected to reach 14.7 million units, 20% higher than the bank's expectation of 12.3 million units and 12% higher than the market consensus of 13.1 million units.

However, the bank indicated that despite strong demand in the second quarter, supply chain analysis shows that some of the demand may be a result of early release. As the 618 promotional activities end at the beginning of the third quarter, the sales growth of iPhones and iPads may slow down. Therefore, third-quarter iPhone production is expected to be 50 million units, a quarter-on-quarter increase of only 8%, lower than the seasonal quarter-on-quarter increase of 24% over the past three years; iPad production is expected to be 14 million units, a quarter-on-quarter decrease of 3%, lower than the seasonal quarter-on-quarter increase of 33% over the past three years.

However, the current production forecast shows that third-quarter iPhone shipments are consistent with Morgan Stanley's current forecast of 20 million units, and iPad production is 1 million units higher than its forecast of 13 million units. Therefore, despite the weak seasonal performance in the third quarter, based on the strong base in the second quarter, production and shipment volumes actually indicate that third-quarter shipments will still meet or slightly exceed the bank's expectations.

In addition, Apple's iPhone production in India is progressing smoothly, with an expected annual output of 47 million units in 2025, nearly a 70% increase from 28 million units in 2024. The bank expects that if the current production pace continues, by the end of 2026, all iPhones shipped to the United States may come from India