Apple falls 2% as HSBC joins chorus of banks downgrading shares on iPhone saturation fears...

Posted:
in AAPL Investors edited December 4
A dependance on the iPhone for the majority of its revenue and a saturation of the smartphone market has contributed to a downgrade of Apple's shares from HSBC, which shifted Apple down from a "Buy" grade to "Hold" and a reduced 12-month target price from $205 to $200.




In a note seen by AppleInsider, HSBC's Erwan Rambourg believes that Apple's hardware unit growth is "broadly over for now." While sales have stalled, Rambourg claims that revenue growth is only supported by higher average selling prices for iPhones, as well as the continued and predictable growth of Apple's Services business.

The analysts also offered the stark warning that "what has made the success of Apple, a concentrated portfolio of highly desirable (and pricey) products is now facing the reality of market saturation."

The flat unit growth is noted to have "hit Apple's share price and incidentally its key suppliers," referring to a string of companies that provide components for Apple's smartphone that are warning of lower revenues for the quarter. Ambient light sensor supplier AMS, Japan Display, Lumentum, and Qorvo all slashed their forecasts in the middle of November following reports of production cuts for Apple's current generation of devices.

Rambourg says that Apple stock investors are in a position where it is "too late to sell, too early to buy." On the heels of the report, shares of the iPhone maker were trading down 2% to $181.12 on the NASDAQ.

Not all companies are feeling the pinch, with Dialog Semiconductor advising it did not see the same bottom line hit as other suppliers due to the use of its power management technology elsewhere. A-series chip foundry TSMC is also insulated by production cuts which it says it has not yet seen, as it is gaining orders to use its 7-nanometer fabrication process with a number of other major clients.

The share price itself has also come under scrutiny by HSBC, suggesting Apple could potentially trade at a higher earnings multiple that brings it in line with firms producing luxury goods. Ultimately Apple's shares are deemed not "particularly expensive," and undeserving of the multiple increase.

Rambourg would like to see "complementary strategies" from the company. Specifically, the analyst would like wider reach for all of Apple's services like Apple Pay, a stronger push of augmented reality technology, and "pure innovation" without specifying what in particular he'd like Apple to expand into.

Keeping the multiple the same is also seen as a bad thing for the high stock price, due to the earnings and revenue growth being slow. "As Apple moves from a very high double-digit revenue growth to a more pedestrian mid single-digit, the slowdown in the second derivative of growth with weigh on the stock's investment case," HSBC adds.

Acknowledging Apple's interest in no longer providing unit sales for hardware in favor of highlighting the service gross margin, HSBC warns "investor enthusiasm could be the victim of a lengthy transition phase as the focus shifts." Samsung and Google do not report unit sales figures.

Regardless of continuing analyst fears over the cessation of unit sales figure reporting, Apple is expecting its largest holiday quarter ever, with a revenue range of between $88 billion and $92 billion.
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Comments

  • Reply 1 of 27
    cornchipcornchip Posts: 1,133member
    Bankers not understanding what Apple does. 
    magman1979StrangeDays
  • Reply 2 of 27
    sdw2001sdw2001 Posts: 16,907member
    Just more of the "make the news" effect in the financial industry.   It also shows what a mess the fundamentals of the market are....all based on on QoQ growth.  Stock prices have nothing to do with the overall health of a company.  Apple is incredibly healthy.  It sells millions upon millions of devices, has a robust and growing services business, hundreds of retail stores with heavy traffic and high revenue, unbelievable brand loyalty, a supply chain second to none, and a reputation for innovation.  But if some analyst predicts 65 million phones sold vs. 67 million, the stock goes down 8%.   Unreal.  
    magman1979palomineJWSCLukeCage
  • Reply 3 of 27
    Rayz2016Rayz2016 Posts: 4,456member
    Mmm …

    I'm wondering if now's a good time to jump in, or if it'll go lower.
    kingofsomewherehotjony0
  • Reply 4 of 27
    jimh2jimh2 Posts: 56member
    Walmart is dependent on selling products, Restaurants are dependent on selling food, US Steel is dependent on selling steel, Tobacco companies are dependent on tobacco sales, Hershey is dependent on chocolate sales, Exxon is dependent on oil and derivative product sales, Clorox is dependent on bleach sales, Dell is dependent on computer sales, and the list goes on and on. Most companies only delivery one major product. Companies that try to cover all bases frequently end up divesting themselves of non-related products.
    badmonk
  • Reply 5 of 27
    avon b7avon b7 Posts: 2,895member
    sdw2001 said:
    Just more of the "make the news" effect in the financial industry.   It also shows what a mess the fundamentals of the market are....all based on on QoQ growth.  Stock prices have nothing to do with the overall health of a company.  Apple is incredibly healthy.  It sells millions upon millions of devices, has a robust and growing services business, hundreds of retail stores with heavy traffic and high revenue, unbelievable brand loyalty, a supply chain second to none, and a reputation for innovation.  But if some analyst predicts 65 million phones sold vs. 67 million, the stock goes down 8%.   Unreal.  
    You are right although I've considered Apple overpriced for a long while now. Of course, if you bought in years ago as a long term investment you have little to worry about anyway.

    For large Investors these falls have little relevance and are simply blips during a largely positive year.
  • Reply 6 of 27
    lkrupplkrupp Posts: 6,526member
    jimh2 said:
    Companies that try to cover all bases frequently end up divesting themselves of non-related products.
    Like GE is doing right now.
  • Reply 7 of 27
    It’s interesting how many psychics are employed in the stock analysis business.
    JWSC
  • Reply 8 of 27
    It’s hard to disagree that hardware unit growth is likely to slow down, but

    1) analysts have been saying this for quite a few years now, and Apple continues to surprise 

    2) like he said, the Services division continues to grow relentlessly 

    3) even if unit sales flatten out, ASPs and margins have been growing and may continue to do so—just look at the XS Max and iPad Pro

    4) even if every Apple business line stopped growing, the share price would probably still double in less than five years if they kept trading at the same low multiple, due to buybacks

    so, for the short term, there may be better growth stocks out there if you can find them, but Apple is reliably raking in cash, continuing to grow, and if the stock market were to suddenly crash, it’s one of the companies that is most likely to come out fine, because of their huge buyback program. 

    I also think there’s a decent chance that they will release something like an “iPhone SE2” next spring, with a smaller body and screen, Face ID and a price that’s lower than that of the XR, which would be extremely popular. 
    melodyof1974
  • Reply 9 of 27
    bitmodbitmod Posts: 190member
    Rayz2016 said:
    Mmm …

    I'm wondering if now's a good time to jump in, or if it'll go lower.

    It will go lower... much lower. I’m going to jump in at ~$65 myself. Looking at about February/March 2020. Then it should go up pretty fast once Tim is gone and some fresh talent and industrial designs debut later that year.
    elijahg
  • Reply 10 of 27
    bitmod said:

    It will go lower... much lower. I’m going to jump in at ~$65 myself. Looking at about February/March 2020. Then it should go up pretty fast once Tim is gone and some fresh talent and industrial designs debut later that year.
    LOL, good luck with that “plan.”
    StrangeDaysJWSCkingofsomewherehotmonstrosityjony0
  • Reply 11 of 27
    cornchip said:
    Bankers not understanding what Apple does. 
    They only understand manipulation 
  • Reply 12 of 27
    cornchip said:
    Bankers not understanding what Apple does. 
    They don’t even understand what they themselves do...  :#
    edited December 4 palomine
  • Reply 13 of 27
    LatkoLatko Posts: 152member
    cornchip said:
    Bankers not understanding what Apple does. 
    There are lots of opportunities and challenges to improve Apple’s outlook when it comes to innovation, quality, financial outlook, redefining its mission in saturated markets - which are not optimally served by a CEO denying every problem and diverting his attention so much towards external causes. Look at his Twitter feed. Note: that’s not just my personal assessment, but a more general impression in the market. It is up to Tim to either feed or calm those factors you mention. He has no higher truth than that, apparently. And raising prices for the sake of protecting sales volume is actually a very, very (=intrinsically) bad idea. Not disclosing unit sales numbers is already backfiring on him. Time for a change.
    edited December 4
  • Reply 14 of 27
    Latko said:
    cornchip said:
    Bankers not understanding what Apple does. 
    There are lots of opportunities and challenges to improve Apple’s outlook when it comes to innovation, quality, financial outlook, redefining its mission in saturated markets - which are not optimally served by a CEO denying every problem and diverting his attention so much towards external causes. Look at his Twitter feed. Note: that’s not just my personal assessment, but a more general impression in the market. It is up to Tim to either feed or calm those factors you mention. He has no higher truth than that, apparently. And raising prices for the sake of protecting sales volume is actually a very, very (=intrinsically) bad idea. Not disclosing unit sales numbers is already backfiring on him. Time for a change.
    No other phone seller discloses unit sales. Why help competitors by divulging unit sales figures?
    StrangeDaysLukeCage
  • Reply 15 of 27
    cmd-zcmd-z Posts: 32member
    I will do you all a favor and refrain from buying shares ... if I did it, with my luck they would surely continue to drop! #sharecooler
    JWSC
  • Reply 16 of 27
    Rayz2016Rayz2016 Posts: 4,456member
    bitmod said:
    Rayz2016 said:
    Mmm …

    I'm wondering if now's a good time to jump in, or if it'll go lower.

    It will go lower... much lower. I’m going to jump in at ~$65 myself. Looking at about February/March 2020. Then it should go up pretty fast once Tim is gone and some fresh talent and industrial designs debut later that year.

    No one here believes you have any money.
    edited December 4 StrangeDayskingofsomewherehotbestkeptsecretmonstrosity
  • Reply 17 of 27
    entropysentropys Posts: 1,374member
    Stop reporting the facts and someone else will make up some facts for you.
  • Reply 18 of 27
    Rayz2016Rayz2016 Posts: 4,456member

    It’s hard to disagree that hardware unit growth is likely to slow down, but

    1) analysts have been saying this for quite a few years now, and Apple continues to surprise 

    2) like he said, the Services division continues to grow relentlessly 

    3) even if unit sales flatten out, ASPs and margins have been growing and may continue to do so—just look at the XS Max and iPad Pro

    4) even if every Apple business line stopped growing, the share price would probably still double in less than five years if they kept trading at the same low multiple, due to buybacks

    so, for the short term, there may be better growth stocks out there if you can find them, but Apple is reliably raking in cash, continuing to grow, and if the stock market were to suddenly crash, it’s one of the companies that is most likely to come out fine, because of their huge buyback program. 

    I also think there’s a decent chance that they will release something like an “iPhone SE2” next spring, with a smaller body and screen, Face ID and a price that’s lower than that of the XR, which would be extremely popular. 

    Oh, it's an absolute given that hardware unit growth is going to slow down; the bizarre thing is that folk actually believe Apple doesn't realise this. 
    StrangeDaystmay
  • Reply 19 of 27
    quinneyquinney Posts: 2,521member
    Rayz2016 said:
    Mmm …

    I'm wondering if now's a good time to jump in, or if it'll go lower.
    Just stick your toe in.  If it goes lower, buy a little more.  If it goes higher, at least you won't miss the move by trying to time the exact bottom.
  • Reply 20 of 27
    bitmod said:
    Rayz2016 said:
    Mmm …

    I'm wondering if now's a good time to jump in, or if it'll go lower.

    It will go lower... much lower. I’m going to jump in at ~$65 myself. Looking at about February/March 2020. Then it should go up pretty fast once Tim is gone and some fresh talent and industrial designs debut later that year.
    Are you a troll or just delusional? (I think you were the guy who insisted his iPhone was listening to your spoken conversations and selling those topics to Facebook to sell you ads, right..?) Neither of those things is going to happen. Thankfully.
    edited December 4
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