Since Apple revised its revenue guidance on Wednesday, analysts have been quick to weigh in on the lower-than-anticipated iPhone sales and primarily Chinese market-driven revenue declines. AppleInsider summarizes a selection of commentators’ statements.
Apple issued a warning on Wednesday that it expects to achieve $84 billion in revenue in its upcoming quarterly results report, a decrease from the range of $89 billion to $93 billion that was originally projected. Tim Cook, the chief executive officer of Apple, informed investors in a letter that there would be fewer iPhone upgrades than anticipated, citing “foreign exchange headwinds” from a strong U.S. Dollar and “economic weakness in some emerging markets” as the reasons.
A significant portion of the letter also attributed the shortfall to lower-than-anticipated iPhone revenue “primarily in Greater China.” Cook noted that revenue from non-iPhone businesses grew by nearly 19 percent year-over-year and that revenue records were set in several developed markets.
Analysts have provided a deluge of commentary on the matter, even though Apple continues to generate sky-high profits. Predictably, the pessimism is palpable.
Wedbush Securities Company
According to Dan Ives of Wedbush Securities, speaking to CNBC, the news is a “major black eye” for the iPhone maker, and “it’s a dark day for Apple and bulls.” Apple will focus on Chinese demand in the coming quarters, according to Ives, who adds, “The degree of softness we’re seeing in China is a bit shocking.”
Ives believes that Cook’s decisions will determine Apple’s future actions, including whether prices will be lowered and whether this will be a two- or three-quarter “massive downturn.” Ives believes that Cook’s decisions will determine Apple’s future actions. This, in my opinion, will be a defining period for Cook in terms of how he and the company handle metrics and China demand.
Wedbush decreased its target price from $275 to $200.
Goldman Sachs
Rod Hall of Goldman Sachs suggests that the trajectory of Chinese demand in early 2019 may have a further impact on the remainder of the year’s numbers. It is proposed that Apple may have to reduce its fiscal year projections further, but at the expense of its stock price.
In a note to investors, Hall states, “We have been highlighting China demand issues since late September, and Apple’s guidance cut confirms our view.” We do not expect the situation to improve in March and will continue to exercise caution in the region.
The analyst also compared Apple to Nokia’s rise and fall, citing Nokia’s reliance on replacement upgrades “well beyond what any linear forecast would have implied” in late 2007, and citing this as a cautionary tale for Apple’s reliance on consumer iPhone upgrades.
In response to the news, Goldman Sachs lowered its price target from $182 to $140.
Morgan Stanley
According to a Morgan Stanley note, the lengthening of smartphone cycles is a major contributor to Apple’s woes, with “improved smartphone product quality” and longer useful lives joining a weakening economy in affecting Apple. Due to this and China’s performance, the company reduced its price target from $236 to $211, and its iPhone unit target for FY19 from 180.25 million to 20 million, a reduction of 17 percent year-over-year.
Regarding China specifically, the company’s analysis of shipment data “suggests that replacement cycles have lengthened significantly over the past two years, and even more so for Apple” A 22 percent increase in the average selling price of smartphones over two years and the absence of carrier subsidies also contributed to the current situation in China.
JP Morgan
The revision “follows a disappointing F1Q19 revenue forecast issued in early November,” according to JP Morgan’s note. While other headwinds tracked expectations, preliminary results “tracked significantly lower than guidance, driven by greater economic weakness in emerging markets and fewer phone upgrades in developed markets.”
The relatively high price objective of $266 was reduced to the still-respectable amount of $228.
UBS
The release of the guidance “implied China revenue declined 25-30% year-over-year,” according to UBS, “declines last seen during the iPhone 6S cycle due to very tough iPhone 6 comps at the time.” Consequently, the price objective is reduced from $210 to $180.
UBS advises there is an “important silver lining” in Apple’s Services business, which generated revenue of $10.8 billion, approximately $500 million above UBS’ projection. Despite the decline in revenue, the gross margin of 38% is still within the acceptable range, albeit at the low end.
Jeffries
The “rapidly deteriorating” business in China and the “substantially worse than our below-consensus estimates” revised outlook for iPhone have prompted Jeffries to lower its price target from $225 to $160 and downgrade the stock to “Hold.”
“We still believe Apple can build a massive Services business over time,” the company adds, “but Apple hasn’t missed its guide in years, so the magnitude of this miss suggests it’s in uncharted waters.”
As uncertainty grows within the hardware industry, we withdraw from the market and wait for clarity.
Macquarie
Macquarie, another firm that has decided to downgrade Apple, this time to “neutral,” has slashed its price target from $188 to an extremely low $149. The firm writes in its note, “The bottom line is that we are late (obviously), but we can no longer recommend AAPL.”
“Fears regarding the iPhone have been confirmed, uncertainty regarding the severity and duration of iPhone issues will persist, and the other shoe is about to drop on Services growth, especially for its highest margin drivers.”
Citi
After accounting for 18 percent of total sales in the previous quarter, Citi estimates that China’s share is now between 10 and 12 percent. Citi has decreased its target price from $200 to $170, even though its financial model is below the consensus.
“We do not anticipate much positive news until earnings are reported in late January, and even then, the focus will be on how low sales can go,” the company writes, predicting a 5 percent year-over-year decline and a 2 percent decline in March. We do not anticipate a stock market rally shortly until consensus estimates are materially lowered and trade conflicts are resolved.
Piper Jaffray
Reducing the price target from $222 to $187, Piper Jaffray notes that it has lowered its iPhone unit estimates for 2019 and 2020, while simultaneously increasing its estimates for non-iPhone revenue, including Services, Mac, and wearables. “As a result, our model predicts that revenue for fiscal years 2019 and 2020 will decline by 6 percent and 4 percent, respectively.”
According to analysts, the reduced price target reflects both decreased earnings per share estimates and a “slightly reduced PT multiple.”
Wells Fargo
Wells Fargo is “questioning the impact of the U.S.-China trade situation” as a result of Apple’s disclosure of the revenue decline resulting from the iPhone, iPad, and Mac markets’ weakness in Greater China.
Noting that “weaker-than-expected iPhone results” have been anticipated since November, the company’s industry research leads it to believe that “demand weakness, coupled with channel inventory burn-off, could persist for several quarters.” Following the announcement, market expectations have decreased to approximately 65 million units from a range of less than 70 million.
Wells Fargo lowered its target price from $210 to $160.
