AAPL analysts spar over state of Chinese iPhone sales

Posted:
in AAPL Investors edited December 2019
China, the world's largest smartphone market, has been nothing short of a moving target for Apple. A salvo of shots fired by top analysts this week only evidences one thing: the only near-term certainty with Apple and China may be more uncertainty.

Apple store in Hangzhou, China.
Apple store in Hangzhou, China.


Credit Suisse issued a cautionary note on Apple's iPhone performance in greater China early Thursday morning. In the note, seen by AppleInsider, analyst Matthew Cabral said that checks showed a more than 35% yearly decline in Chinese iPhone shipments in November -- trailing far behind a broader Chinese smartphone market that has remained relatively flat over the same period.

In presenting the data, Cabral acknowledged the challenging year-over-year compare Apple faced given vast differences in the timing of its iPhone launches over the past two years and similarly cautioned clients about reading too much into potentially "volatile" monthly data.

Nonetheless, the November drop was the second straight double-digit decline in Chinese iPhone shipments, he said, following on the heels of a 10.3% yearly decline for October. That would imply a more than 7% overall decline in Chinese iPhone shipments since the launch of Apple's iPhone 11 family, Cabral added, explaining that mix shift towards the lower-priced "iPhone 11" model amongst most of the region and a significantly discounted Renminbi may only intensify Apple's struggles.

Cabral's note caused a stir amongst AAPL investors who, also fearing potential complications from a looming tariff deadline, sent shares sliding over 1.5% before reversing course on upbeat trade comments tweeted by President Trump a couple of hours later.

"While early indicators of demand on the iPhone 11 cycle were consistently better-than-expected, sustained softness in China is an incremental concern, particularly given the increasingly easy [year-over-year] compares," Cabral wrote. "At this stage, we're hesitant to extrapolate weak Chinese data points broadly across Apple's global footprint given our view that structural factors are at play (we see aggressive local competition and a narrower ecosystem advantage in China) and build plans remain largely unchanged, per our Asia team."

Credit Suisse maintained its "Neutral" rating on AAPL shares with a $221 price target. The firm's views on Chinese iPhone sales almost immediately came under scrutiny from rivals, with Evercore ISI analyst Amit Daryanani reiterating his firm's newly established $305 price target and "Outperform" rating. He issued a note to clients urging them to "look past the [Chinese] iPhone noise and focus on several upside catalysts" that he believes will help the iPhone maker post a solid beat to earnings for its current December quarter.

"We think investors appear to be reacting to data-points related to China's MIIT smartphone data that shows a decline in the month of November," Daryanani said. He stressed the tough year-over-year compare that Cabal had originally alluded to while presenting his bearish Phone call -- the fact that iPhone XR was launched in November 2018, while the iPhone 11 was released in September 2019.




When normalized over three months, Daryanani believes recent Chinese iPhone data "points to a trendline that's actually up slightly at 3% year-over-year. The Evercore analyst issued a note to clients just one day earlier raising his target on AAPL shares to $305 from $275, vouching his opposing view that iPhone 11 sales will actually surprise to the upside this quarter, outperforming relatively low expectations due in part to $50 price cut between the iPhone XR to the iPhone 11 that "has been particularly well received in China."

With a population of roughly 1.4 Billion, China and its smartphone market remain a massive, yet thus far elusive target for Apple and international smartphone vendors. Though it has outsold rival Samsung, Apple has only managed to muster up a single-digit share of the overall Chinese smartphone sales. The company is dwarfed by local rivals such as Huawei, Xiaomi, Vivo, and Oppo, who combine to control over 80% of the market.

In a move atypical for the company, Apple earlier this year admitted to overshooting the Chinese market with the iPhone XR and issued a revenue guidance warning, which ultimately saw sales in the region slip nearly 5% year-over-year.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Apple CEO Tim Cook said at the time. "In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac, and iPad."

Cook added that "while macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements."




Though Apple may be making strides towards more attractively priced smartphones with the iPhone XR, its struggles to stem the bleeding and remain relevant in emerging markets could not be more relevant at a time where the company's greatest prospects for revenue growth arguably lie within those same countries. According to a recent Bank of America global smartphone forecast released earlier this week, Apple lost share during the third quarter of the year in every key emerging and major market except for the US, including losses in China, India, and Latin America.

The firm's Global Research division cited Strategy Analytics data in estimating that Apple currently maintains 12% of the global smartphone market, but just a wavering 5% share in China that's expected face continued pressure over the next several years.




Just how much of Apple's near term growth opportunity remains tied to China and its booming smartphone market is likely to remain a hotly contested debate. Of all the analysts who provide coverage of Apple, Morgan Stanley's Katy Huberty has arguably had her finger closest to pulse when it comes to expectations in China.

"We caution extrapolating China iPhone Data points," she said Friday, in an apparent jab Credit Suisse's call. She reiterated her firm's "Overweight" rating and $296 price target on Apple shares but shared nothing further.

The next time we expect to hear from Apple on how it's faring in China will be late January 2020, when the company reports results of its current, first fiscal quarter of the new year.

At the close of trading on Friday, Apple stock closed at $275.15, a new all-time high. Notably, the Chinese government and President Trump announced that they agreed in principle for a "phase one" deal to hopefully wind down the trade war. Tariffs expected to commence on December 15 on a wide array of Apple products will not be implemented, and a 15% tariff placed on September 1 will be halved "in phases."

Comments

  • Reply 1 of 12
    There are only about 5 or 6 credible AAPL analysts (with the track records to prove it) and this is not one of them.
    watto_cobra
  • Reply 2 of 12
    lkrupplkrupp Posts: 9,277member
    While “analysts” perform their circle jerks AAPL finished up $3.69 to $275.15 and $1.243T market cap today. But, as usual, they are Doomed™.
    tmayanantksundaramsocalbrianwatto_cobrajony0
  • Reply 3 of 12
    jimh2jimh2 Posts: 341member
    The good news is that they can only extrapolate from their made up numbers and not the actual numbers. Extrapolation from unknown or speculative numbers has no real value and people realize that quickly.
    watto_cobraFileMakerFellerRayz2016
  • Reply 4 of 12
    BebeBebe Posts: 142member
    The usual end of the year BS analysis.  Stock manipulation?
    watto_cobra
  • Reply 5 of 12
    No offense, Appleinsider, but you need to stick to what you do well, and clearly it’s not pontificating on the business end of Apple and AAPL!

    First and foremost, NOBODY outside of Apple has any clue how many devices they actually sell. Second, apparently you didn’t get the memo, but it’s no longer about “market share”, it’s all about “installed base”, which last I checked is still growing for Apple. In fact, by now, Apple is probably approaching owning a third of the smartphone installed base. And that installed base is loyal; when they buy again, they’ll buy Apple.

    Crap stories and crap valuations for Apple are nothing new. It’s why Apple, even now, is undervalued. And giving credence to those crap stories only perpetuates the undervaluation.

    Fortunately, a few years ago, Apple figured out exactly how to deal with that undervaluation; it put it’s enormous cash flow to work buying up huge chunks of that ridiculously cheap stock and taking it off the market. The result was to reward long term Apple investors by increasing their percentage ownership of Apple.

    Apple is now approaching 4 B shares outstanding. When it hits about 3.3 B shares, it will have literally doubled the percentage interest in Apple of each share held since stock buybacks began! And Apple is a far bigger and far more valuable company than it was then.

    But that’s only the money side, a mere byproduct of a company dedicated to constantly improving the way people work, play, and grow, and a company whose relevance is still increasing along with it’s dimensions by leaps and bounds.

    THAT’S what’s really going on with Apple’s business.
    anantksundaramsocalbrianwatto_cobraRonnnieOSpamSandwichFileMakerFellerRayz2016jony0
  • Reply 6 of 12
    The best thing Apple did was to stop providing volume data to these guys. Funny to see them scrambling.

    I truly hope the next step will be for Apple to stop providing earnings guidance, altogether.
    watto_cobraSpamSandwichjony0
  • Reply 7 of 12
    Bebe said:
    The usual end of the year BS analysis.  Stock manipulation?
    No.
  • Reply 8 of 12
    Credit Suisse is trying to generate news to match their $221 price target. They have an inaccurate track record. Seems like nobody cares about their report as evident of  current stock price. Just another manipulator.
    watto_cobra
  • Reply 9 of 12
    tzmmtz said:
    Credit Suisse is trying to generate news to match their $221 price target. They have an inaccurate track record. Seems like nobody cares about their report as evident of  current stock price. Just another manipulator.

    You almost have to feel sorry for clients following these analyst's advice.  They're missing out on fantastic gains if they had any intentions to buy Apple stock.  The analyst is missing by so much that he shouldn't even have that type of job.
    watto_cobra
  • Reply 10 of 12
    k2kwk2kw Posts: 2,035member
    lkrupp said:
    While “analysts” perform their circle jerks AAPL finished up $3.69 to $275.15 and $1.243T market cap today. But, as usual, they are Doomed™.
    Apple will be fine because Meaningful, tough tariffs won’t be imposed by this administration. That’s just talk.
  • Reply 11 of 12
    Rayz2016Rayz2016 Posts: 6,816member
    sacto joe said:
    No offense, Appleinsider, but you need to stick to what you do well, and clearly it’s not pontificating on the business end of Apple and AAPL!

    First and foremost, NOBODY outside of Apple has any clue how many devices they actually sell. Second, apparently you didn’t get the memo, but it’s no longer about “market share”, it’s all about “installed base”, which last I checked is still growing for Apple. In fact, by now, Apple is probably approaching owning a third of the smartphone installed base. And that installed base is loyal; when they buy again, they’ll buy Apple.

    Crap stories and crap valuations for Apple are nothing new. It’s why Apple, even now, is undervalued. And giving credence to those crap stories only perpetuates the undervaluation.

    Fortunately, a few years ago, Apple figured out exactly how to deal with that undervaluation; it put it’s enormous cash flow to work buying up huge chunks of that ridiculously cheap stock and taking it off the market. The result was to reward long term Apple investors by increasing their percentage ownership of Apple.

    Apple is now approaching 4 B shares outstanding. When it hits about 3.3 B shares, it will have literally doubled the percentage interest in Apple of each share held since stock buybacks began! And Apple is a far bigger and far more valuable company than it was then.

    But that’s only the money side, a mere byproduct of a company dedicated to constantly improving the way people work, play, and grow, and a company whose relevance is still increasing along with it’s dimensions by leaps and bounds.

    THAT’S what’s really going on with Apple’s business.
    Well said. 


    watto_cobra
  • Reply 12 of 12
    avon b7avon b7 Posts: 5,820member
    Market share is very important. As important as it ever was. It is also probably why Tim spoke about potentially untethering  some areas going forward.

    As handset sales flattened out, Apple put more emphasis on installed base but 'installed base' (as a number) doesn't mean 
    much at all.

    It definitely means far less than quarterly shipment data (independently of other areas of Apple's business) which Apple has stopped providing as it is supposedly not very representative.

    What is crystal clear is that 'installed base' is even less representative unless Apple fleshes the number out. It has all the data down to the last machine/user but AFAIK has never provided it. 

    I have eight iOS devices that are 'live' and associated with two AppleIDs. Of those eight, only three are in active use although the others occasionally get online. 

    I take that to mean that they are all included in Apple's installed base but how relevant is that is only two of the devices are actually tied to 'potential' revenue generation for Apple/developers?

    I say 'potential' because right now we have no Apple services and are unlikely to generate more App revenue for Apple/Developers.

    Without details, the information on installed base doesn't mean much at all, and as iOS is a mature platform, the  more likely it is that older, non-revenue generating devices are forming part of the total. 



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