Morgan Stanley cuts Apple stock price target over weak Chinese iPhone demand

Posted:
in AAPL Investors
Analysts from Morgan Stanley are the latest to cut their price target for Apple stock, with longer smartphone replacement cycles in China apparently to blame.

iPhone XS Max and iPhone XS
iPhone XS Max and iPhone XS


The "China smartphone market is to blame" for lower than expected iPhone results, writes analyst Katy Huberty. Though not Apple's fault directly, it seems the smartphone market in general has slumped with reduced growth.

As a result of the analysis, Morgan Stanley cut its 12-month share price target for Apple from $253 to $236. While there are other factors, the sales of iPhones in China, a major market for Apple, is cited as the main reason for the downgraded price.

It is suggested the issue lies in consumers deciding to hold onto their smartphones for a longer period than previously seen, a phenomenon observed in other countries. "China is following in the footsteps of the US with replacement cycles lengthening," claims Morgan Stanley.

Morgan Stanley's price target is still above the analysts' mean, which is around $212. On Friday morning, Apple stock is down $1.30 on the news in a market that is slightly positive, falling to $173.38.

Keeping iPhones on hand for longer can be attributed to consumers wishing to save money by not paying out for a new device every two years. Critics may also observe it as smartphone producers failing to entice upgrades at the usual rates, suggesting an innovation leap is in order for the industry as a whole.

"Our recent meetings in Asia highlight a weakening China smartphone market, especially at the high-end where suppliers have seen order cuts across most vendors," notes Huberty.

This references numerous reports over the last few weeks where firms have warned of lower revenues or have made changes to their workforce due to lower orders. Not all firms in the Apple supply chain are affected the same way, such as Dialog Semiconductor having sufficient components used throughout Apple's products to weather the downturn, while TSMC has secured orders from alternate sources keen to take advantage of its 7-nanometer chip product process.

Morgan Stanley joins the roster of other investment firms and analysts to have downgraded Apple's stock following the 2018 iPhone launches, with many of the complaints highlighting supposedly low demand for the iPhone XR.

On Thursday, UBS lowered its target from $225 to $210, citing weak iPhone demand. On the same day, Rosenblatt Securities cut to a more pessimistic $165 target, over demand and issues with Apple's pricing strategy aiming for revenue generation rather than unit growth.

A Tuesday note from HSBC warned Apple's hardware unit growth is "broadly over for now," with revenue growth only sustained through higher average selling prices.

In mid November, Guggenheim Securities reduced its estimates for Apple's full year 2019 revenue from $281 billion to $273 billion, noting iPhone provides nearly 60 percent of the company's revenue but with the expectation its revenue is unlikely to grow much next year.

Huberty is typically bullish on Apple in investor notes, but is crucially considered to be more accurate in her pronouncements than other analysts. Notably, she was the first to change her tune about the iPhone X sales prognostications being wildly off-base.
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Comments

  • Reply 1 of 44
    red oakred oak Posts: 621member
    What is the data on the China replacement cycle.   What is it now,  what is it changing to.  Where did she get this data  

    Basic questions like that 
    analyst52cornchippalomine
  • Reply 2 of 44
    lkrupplkrupp Posts: 6,521member
    Longer smartphone replacement cycles? I thought it was price and price alone. At least that’s what usual suspects are always yammering about here.
  • Reply 3 of 44
    Yet, iPhone was the top seller on Alibaba Singles day? Beating out Huwaei, and Xiaomi.
    jmey267yojimbo007cornchip
  • Reply 4 of 44
    Same article every time every other day saying boo to apple as if they can talk up theirs....
    Non real news sensationalism!!!
  • Reply 5 of 44
    Apple’s US website earlier this week:

    Apple’s US website today:

    Clearly Apple wants people to see XR $449 and XS $699. And notice the Learn More link was removed and Buy was changed to Buy Now.

    And I’m seeing on Twitter that owners of older iPhones are getting emails like this from Apple.

    Does Apple typically send out these kind of emails several months after a phone has been released? And emails where price is the first thing mentioned? I don’t remember seeing things like this last year at all. 
    edited December 7 elijahgclaire1muthuk_vanalingam
  • Reply 6 of 44
    The stock market is traditionally down at this time of year, so...
  • Reply 7 of 44
    lkrupp said:
    Longer smartphone replacement cycles? I thought it was price and price alone. At least that’s what usual suspects are always yammering about here.
    It’s a combination, of course.  Apple makes amazing phones and has been for a decade.  Quality phones + nothing amazing/revolutionary in the new phones + rising ASPs + more people smartphones = decline in sales.  It’s not that hard to figure out
    elijahgmuthuk_vanalingam
  • Reply 8 of 44
    They are still delusional to think it will be back at 236 within a year I think. 

    and I would disagree that the post above that the  markets are usually down this time of year. Quieter and flatter perhaps , but not down as much as they are. That’s due to exceptional circumstances this year and in apples case a series of bad news to go on top. 

    I got lucky and sold everything I had at 227 (main reason for selling was the sky high prices they were now charging.. smelled fishy)

    Key question is whether to get back in yet.  Gut says it’s gonna go lower (150 easily) before it slowly recovers back to 200 by mid next year. 

    But it I do agree with the analysts that apple has a problem. And cranking up the prices is not going to work in the long run of unit sales keep falling (which they will at the prices they are now charging) . All stocks are priced for future profit, hence why it’s falling. Hiding the unit sales after years of showing them also says you have something to hide. 

    elijahg
  • Reply 9 of 44
    ksecksec Posts: 1,513member
    analyst52 said:
    Yet, iPhone was the top seller on Alibaba Singles day? Beating out Huwaei, and Xiaomi.
    If Apple had a 13 - 18 % discount in any countries I would bet it will win against all of its competitor on that day in sales.
    analyst52elijahg
  • Reply 10 of 44
    brucemcbrucemc Posts: 1,469member
    lewchenko said:
    They are still delusional to think it will be back at 236 within a year I think. 

    and I would disagree that the post above that the  markets are usually down this time of year. Quieter and flatter perhaps , but not down as much as they are. That’s due to exceptional circumstances this year and in apples case a series of bad news to go on top. 

    I got lucky and sold everything I had at 227 (main reason for selling was the sky high prices they were now charging.. smelled fishy)

    Key question is whether to get back in yet.  Gut says it’s gonna go lower (150 easily) before it slowly recovers back to 200 by mid next year. 

    But it I do agree with the analysts that apple has a problem. And cranking up the prices is not going to work in the long run of unit sales keep falling (which they will at the prices they are now charging) . All stocks are priced for future profit, hence why it’s falling. Hiding the unit sales after years of showing them also says you have something to hide. 

    It's true.  Apple has absolutely no clue about where to go next.  If only they had invested in wearables or services or something...

    tmayMisterKitelijahgfastasleepcornchipLordeHawkclaire1
  • Reply 11 of 44
    I think a factor in people not upgrading as much is because iOS 12 very much improved the performance of older generation phones. I’ll get a $29 battery in my perfectly fine 6s before the deal ends at the end of the year and be fine for another year or two. And not to mention, it has a 3.5mm audio output 😄
    edited December 7
  • Reply 12 of 44
    thedbathedba Posts: 459member
    Well, I guess now would be a good time for Apple to accelerate its share buybacks. 
    One question for stock experts around here. 
    By buying back it’s shares off the market, doesn’t it also reduce overall AAPL market value?
  • Reply 13 of 44
    tmaytmay Posts: 3,244member
    lewchenko said:
    They are still delusional to think it will be back at 236 within a year I think. 

    and I would disagree that the post above that the  markets are usually down this time of year. Quieter and flatter perhaps , but not down as much as they are. That’s due to exceptional circumstances this year and in apples case a series of bad news to go on top. 

    I got lucky and sold everything I had at 227 (main reason for selling was the sky high prices they were now charging.. smelled fishy)

    Key question is whether to get back in yet.  Gut says it’s gonna go lower (150 easily) before it slowly recovers back to 200 by mid next year. 

    But it I do agree with the analysts that apple has a problem. And cranking up the prices is not going to work in the long run of unit sales keep falling (which they will at the prices they are now charging) . All stocks are priced for future profit, hence why it’s falling. Hiding the unit sales after years of showing them also says you have something to hide. 

    https://www.aboveavalon.com/notes/2018/10/22/the-gray-markets-impact-on-iphone-pricing

    You seem unable to transition with Apple to its hardware / services revenue mix, so you should probably sit out the next three quarters until you get comfortable with this new paradigm.
    elijahgLordeHawk
  • Reply 14 of 44
    thedba said:
    By buying back it’s shares off the market, doesn’t it also reduce overall AAPL market value?
    Normally no, because buying up stock will drive the price up.
  • Reply 15 of 44
    19831983 Posts: 1,125member
    Apple’s US website earlier this week:

    Apple’s US website today:

    Clearly Apple wants people to see XR $449 and XS $699. And notice the Learn More link was removed and Buy was changed to Buy Now.

    And I’m seeing on Twitter that owners of older iPhones are getting emails like this from Apple.

    Does Apple typically send out these kind of emails several months after a phone has been released? And emails where price is the first thing mentioned? I don’t remember seeing things like this last year at all. 
    Indeed, Apple seems to have become desperate to sell product very quickly. I think the company is entering its darkest period since the mid-90s. It has to find a viable alternative to the iPhone that provides most of its current income, but that’s a tall maybe impossible order for the near future. By the time the next gen of iPhones comes around its market capitalization maybe half of what it was just a few weeks ago! This is what happens when your business model still mostly depends on hardware units sold rather than services, which has been the saving grace of companies like Microsoft and Amazon. Apple has been one of the few (and lucky!) companies thus far that has somehow been exempt from this market reality. And while I think they’re aware of this and have been working towards an emphasis on services rather than hardware. They haven’t had enough time yet to achieve it. If they want enough time to achieve that goal, and if things carry on the way they are, they may indeed have to do a Dell and go private.
    edited December 7 elijahg
  • Reply 16 of 44
    Still, a smartphone purchase cycle of 2 to 3 years is quite decent for any electronic device. I don't think Apple will be hurt by that if it unit sales can be held flat over that period. Apple just needs to look into other revenue streams to make additional cash flow. I'm no financial genius but I think Apple is a long way from going out of business although Wall Street makes it out to be that way. I'll survive if Apple no longer has the highest market cap in the world. I do think Apple may be trying to hide decreasing iPhone unit sales by not reporting those numbers but what else can they do if the well is running dry. It might be a good way to buy time until Apple can figure out some new business strategy.
    elijahg
  • Reply 17 of 44
    brucemc said:
    lewchenko said:
    They are still delusional to think it will be back at 236 within a year I think. 

    and I would disagree that the post above that the  markets are usually down this time of year. Quieter and flatter perhaps , but not down as much as they are. That’s due to exceptional circumstances this year and in apples case a series of bad news to go on top. 

    I got lucky and sold everything I had at 227 (main reason for selling was the sky high prices they were now charging.. smelled fishy)

    Key question is whether to get back in yet.  Gut says it’s gonna go lower (150 easily) before it slowly recovers back to 200 by mid next year. 

    But it I do agree with the analysts that apple has a problem. And cranking up the prices is not going to work in the long run of unit sales keep falling (which they will at the prices they are now charging) . All stocks are priced for future profit, hence why it’s falling. Hiding the unit sales after years of showing them also says you have something to hide. 

    It's true.  Apple has absolutely no clue about where to go next.  If only they had invested in wearables or services or something...

    I'm a bit puzzled as to why Apple didn't see this coming years ago and forked away from iPhone dependency. Smartphone market saturation was clearly going to happen with all those cheap Android smartphones being cranked out 24/7/365. Apple will still be the most profitable smartphone maker but it seems that's not important to big investors. If Apple is struggling then how do all those other smartphone makers survive? That's something I can't quite figure out.
    claire1
  • Reply 18 of 44
    People above seem to suggest we don’t get the services and wearables drive to more profit. 

    Both need an installed base of users on the iPhone / iPad to keep growing (ie sell more than year before) to keep generating more revenue. Stocks are priced based on future revenue and need to see an ever increasing growth in that aspect where apple is concerned.  Atleast that is what the market is expecting. You can say they don’t get it all you want , but as you can see - stock price is massively affected by the perception of others. 

    In short term , not a problem. Apple has a huge installed base (like me) to bend over for more $$ - like they have been recently. The rewards are apparent for doing so too ... record profits. 

    But they don’t really share that profit with share holders. Dividend is weakish. And growth in user base is slowing. Hence the outlook even with increased profits. ...

    Not rocket science. Plenty of people saw this coming and sold. 

    Saying all that, I’m still confident Apple is a good long term bet and even Jobs once said that “the markets get it ... eventually”. 


    dedgecko
  • Reply 19 of 44
    tmaytmay Posts: 3,244member
    lewchenko said:
    People above seem to suggest we don’t get the services and wearables drive to more profit. 

    Both need an installed base of users on the iPhone / iPad to keep growing (ie sell more than year before) to keep generating more revenue. Stocks are priced based on future revenue and need to see an ever increasing growth in that aspect where apple is concerned.  Atleast that is what the market is expecting. You can say they don’t get it all you want , but as you can see - stock price is massively affected by the perception of others. 

    In short term , not a problem. Apple has a huge installed base (like me) to bend over for more $$ - like they have been recently. The rewards are apparent for doing so too ... record profits. 

    But they don’t really share that profit with share holders. Dividend is weakish. And growth in user base is slowing. Hence the outlook even with increased profits. ...

    Not rocket science. Plenty of people saw this coming and sold. 

    Saying all that, I’m still confident Apple is a good long term bet and even Jobs once said that “the markets get it ... eventually”. 


    You evidently didn't read the link that I provided, but whatever.
    elijahg
  • Reply 20 of 44
    As Buffet says: “Be greedy when others are fearful”.

    Just added some more AAPL @ $170
    edited December 7 tmaydedgeckoanton zuykovcornchipderekcurrieclaire1
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