UBS cuts Apple target over potential smartphone market slowdown, iPhone XR sales

Posted:
in AAPL Investors edited December 6
The smartphone market may be in decline, which, coupled with allegedly weak iPhone XR demand and more users looking at older iPhone models, is forcing UBS to cut its estimate for Apple's stock price.

Blue iPhone XR
Blue iPhone XR


An investor note from UBS seen by Appleinsider cites a survey of consumers across five countries in suggesting the purchase intention for the iPhone is "down across the board," with the United States down to a five-year low and China at a new low.

It is claimed older models are now taking up a bigger portion of the product mix, with new models now accounting for 58 percent of sales compared to the 70 percent to 75 percent claimed by flagship models seen in previous years. Based on the results of the survey, UBS blames the "particularly weak [iPhone] XR demand" for the drop, a claim seemingly bolstered by "ongoing downward XR revisions in the supply chain."

The data suggested the iPhone XR made up approximately 20 percent of new iPhone demand across all models, or at 43 percent for all 2018 iPhone models despite the production cut reports. "While many suppliers have already pre-announced, this indicates that XR supply remains too high and does not support any near-term inflection in the supply chain," declares the analysts.

While more survey respondents are buying more older models, UBS notes this issue is offset by the mix of iPhones worth $999 or more increasing significantly, by 50 percent this quarter compared to 34 percent one year ago. Assuming no change in memory mix, this is said to assume an average selling price (ASP) growth of 6 percent year-on-year, higher than the 5 percent modeled by the firm.

"Weak iPhone demand is hardly and the narrative is clearly going to keep shifting to Services," writes UBS, adding that this is still enough to drive its price target down from $225 to $210. Despite the reduction, Apple is still rated as "buy" as it appears to be "discounted by the recent stock correction."

For the smartphone market as a whole, UBS warns that purchase intent has reached the lowest point in the fourth quarter ever for the United States, United Kingdom, China, Germany, and Japan. Only 41 percent of consumers are planning to buy a new mobile device in the next year, down from the 46 percent observed last year.

India was noted to be the only region in the survey to have strengthened intent, rising to 37 percent from 29 percent.

"We believe risks of the smartphone market going into decline are increasing, and we lower our assumed unit growth for 2019 to 0 percent from 2 percent," UBS writes. There should be a recovery in demand overall in 2020, with a 2 percent growth in purchase intent expected due to the introduction of 5G-compatible and folding smartphones.

Apple's retention rates are strong at 83 percent compared to Samsung's 72 percent, with its 6-percent ASP growth also supporting revenues, leading UBS to believe there is little to disrupt the situation in the near term. Even so, iPhone revenue is tipped to decline by 3 percent for the full year of 2019, partly due to falling consumer interest in the 2018 models, which suggests "the market needs an innovation kick to stimulate demand," similar in tone to HSBC's note from Tuesday.

For what consumers see as important in smartphones, face-based biometric security like Face ID remains a low priority as the second least important factor when buying a phone, but Apple's Face ID has seemingly seen growth in importance with iPhone users compared to the Android market's equivalents. Mobile payments have also improved in importance, but is said to be still quite low on the list.

Comments

  • Reply 1 of 8
    bitmodbitmod Posts: 189member
    In Canada, after tax, Apple Care, and a case - you are looking at over $2000 for the new flagships. $1500 for the XR. 
    This doesn't include the highest prices in the world for data plans ~$80/month ($91 after tax). 
    Looking at around $4200 for 2 years of ownership. 


    Dead_Pool
  • Reply 2 of 8
    Normally I'm playing devil's advocate, but in this instance I'll point out a positive.

    "The data suggested the iPhone XR made up approximately 20 percent of new iPhone demand across all models, or at 43 percent for all 2018 iPhone models despite the production cut reports."

    This tells me the even higher priced/profit XS and XS Max models are selling quite well and account for 57% of 2018 model sales.  This would equate to 25% to 30% of total sales for their highest priced models.  Unless unit sales are tanking badly it would appear revenue should be well within their guidance.
    edited December 6 cornchipmuthuk_vanalingam
  • Reply 3 of 8
    NY1822NY1822 Posts: 545member
    "Weak iPhone demand is hardly and the narrative is clearly going to keep shifting to Services," writes UBS"

    hardly what?
    yojimbo007
  • Reply 4 of 8
    78Bandit said:
    Normally I'm playing devil's advocate, but in this instance I'll point out a positive.

    "The data suggested the iPhone XR made up approximately 20 percent of new iPhone demand across all models, or at 43 percent for all 2018 iPhone models despite the production cut reports."

    This tells me the even higher priced/profit XS and XS Max models are selling quite well and account for 57% of 2018 model sales.  This would equate to 25% to 30% of total sales for their highest priced models.  Unless unit sales are tanking badly it would appear revenue should be well within their guidance.
    Yup.. plus.. since when is a share of 43% between 3 new models considered bad let alone alarming. To me its like saying tomorrow the weather will be sunny and 78 degrees .. its going to be a real bad day. Given the panic frenzy out there.. everything Apple is painted with a negative brush. ..and every supplier issue is believed to be due to Apple... its crazy....And all based on speculation and conjecture .
  • Reply 5 of 8

    As for XR discounts and panic sale promos......This whole thing is none sense and Bloombug Fud.. imo.. 


    Ok lets look at this pragmatically rather than a FUD perspective. 

     Anyone, even before Apple offered this deal or without involving Apple, could/can have the same or less net cost for an XR. There is no desperate promo going on here. 

     I looked at eBay for iPhone 7 plus 128 selling prices... they are between 300 to 450$ I even followed 3 auctions closing... ranged from 360, 375, 395 ! 
     Given the above observation Anyone wanting an iPhone XR could sell their 7 plus 128 iPhone on eBay for 300 to 450!
     Lets go Conservative based on my observed closing prices and say 350$ average. That’s lower than my observed. 

     XR prices at Apple site:
     
    Sim free unlocked:
     XR 64 GIG 674$ 
    XR128 GIG 719$ 

     Carrier version:
     XR 64 GIG  749$
     XR 128 GIG. 799$ 

     Now lets forget Apple Apples so called Panic Promo.. ( which it is not, Apple has had trade in program for years now).... and look at some elementary level math...Subtraction. 

    eBay average iPhone 7 plus 128 price average 350$ (conservative ) 
     The Net out of pocket cost for iPhone XR for a consumer who plans to go from iPhone 7 plus128 to XR: 

    Sim free:
     XR 64 GIG 674$ - 350$= 324 $. 125$ better than apple 
     XR 128 GIG 719$ - 350$= 369 $. 80$ ‘’’’’’’ 

     Carrier version:
     XR 64 GIG 749$ -350= 399 $. 50$’’’’’’’’ 
    XR 128 GIG 799$- 350= 449 $ 0 - Same as Apple deal.

     (Mind you, i went on a very conservative low end of 7plus selling price ..realistically the net cost will be lower and a consumer will have even better deal than above ) 
     
    Where is Apples desperation in this picture?? 
    They are not offering anything over and above what the going market value is.. no extra discounts.. etc. 
     They are just trying to get the trades if anything. And offering a worse deal than one can get otherwise. They have always offered trade-in prices at lower than market prices. 

    Anyone could have had and can have as good or a better deal at any point without involving Apple. Its just that Apple put the promo on their first page.....And the bashers are running with it mindlessly....throwing FUD around. 

     There is no story here.. Just Fud and hit pieces...Bloombug and alike are pushing negative crap out there.. as they have for quite a while.




    edited December 6 clarker99
  • Reply 6 of 8
    I have been in Apple stock for a few years and am aware of the FUD that is part of the game. You can cynically, and accurately, point to this being used to drive prices down to load up for the bounce. With earnings or major announcements not coming for some time what is their end game? The noise is very loud and the journalists and analysts seem to be doubling down on their previous statements so what gives? This is frustrating to watch and with Apple basically radio silent it doesn’t help the situation. I really expected a strong bounce on Monday following the Trump/Xi meeting being reported as positive but really nothing. If the game is to drive down the stock then what news will drive it up?
  • Reply 7 of 8
    bbmnbbmn Posts: 1member
    You don't need to be a highly paid analyst to see that the mobile phone market has matured, and yes this means peak iPhone but also peak every other phone.

    As an iPhone user since the 3G, I upgraded until the iPhone 6, but there is no compelling reason for me to upgrade.

    I tried the XR but returned it, I don't need animated talking poo, FaceID is slower than TouchID for my various use cases and nothing I use my phone for benefits from the  faster processor. I know it's all great tech in the XR but there is no extra utility for me.

    It doesn't surprise that the iPhone is bifurcating in high penetration markets.
    1. Latest and greatest flag ship model, XS/Max
    2. Good enough 7&8





  • Reply 8 of 8
    bitmod said:
    In Canada, after tax, Apple Care, and a case - you are looking at over $2000 for the new flagships. $1500 for the XR. 
    This doesn't include the highest prices in the world for data plans ~$80/month ($91 after tax). 
    Looking at around $4200 for 2 years of ownership. 


    Who buys their phone outright in Canada? Take your carrier subsidy plus trade in the old device and how much are you paying for a XR? Black Friday brought $0 XR promotions. Boxing week will have them as well. 
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