Possible 5G 'iPhone 12' delays drive UBS to cut AAPL target to $335

AppleInsider

Apple shipped fewer than 500,000 iPhone units in February due to coronavirus-related production issues, UBS analyst Timothy Arcuri estimates, forcing an Apple stock price target cut to $355.

iPhone shipments plunged more than 60% year-over-year in February in China due to the COVID-19 outbreak.

Sales of Apple's iPhone plugged 61% year-over-year in China in February, largely due to closed manufacturing plants and parts of the country being in total lockdown due to COVID-19, according to a research note written by UBS' Timothy Arcuri, and seen by AppleInsider.

Arcuri also cut his March quarter iPhone prediction to 40 million from 43 million shipments. "Consensus iPhone estimate of 43 million is only 500,000 below last year, but the data implies close to 2 million impact in China alone," Arcuri wrote.

The more concerning matter for Apple appears to be ongoing supply chain struggles in China. Arcuri writes that if significant production issues persist into June, global demand could be impacted and Apple may need to delay its expected 5G "iPhone 12" in the fall. Based on a current outlook, Arcuri expects production to return by the end of the second calendar quarter and for fall iPhones to launch on-time, however.

In a research note on Friday, Arcuri reported that Apple built out about 36 million iPhone units in the quarter. That's down from UBS' quarterly estimates of 47 million units, but actually a 4% increase year-over-year.

Apple isn't the only one seeing the effects of the coronavirus outbreak. Per monthly Chinese government data, the overall smartphone market was down 55% in February compared to the same time last year, an accelerated slide from 39% in January. Like with iPhone production, that's attributable to production issues and domestic demand in the wake of lockdowns.

AAPL is still a buy according to Arcuri, though the analyst has lowered his 12-month price target to $335 from $355, based on a reduced multiple of 20x, down from 21x, though EPS estimates remain unchanged.

After taking a beating over during a wider financial plunge on Monday, Apple's share price has bounced back to just over $281 as of 10:15 A.M. Eastern Time.

blastdoor

I really find it hard to believe that "this time is different" with respect to AAPL valuations. For the last 10+ years, AAPL has struggled to stay above a P/E ratio in the high teens. There's a story that Wall Street has reset valuation on AAPL due to services, but I'm really skeptical. Apple's services are fine, but they aren't class-leading. Furthermore, they are a bit of a one-off for growth because the only people who will use them are people in Apple's ecosystem. 

Wall Street has never given AAPL the valuations given to companies like Microsoft or Google and that's because those companies have platform monopolies while Apple doesn't. And Apple still doesn't have such a monopoly. If somebody wants to leave the Apple ecosystem, they absolutely can -- there are very credible alternatives. The way Apple keeps people in the ecosystem is not through coercive "lock-in" but rather through quality. If the quality slips, people can (and will) leave. 

The minority of people who give Apple higher valuations believe that Apple is unique in its ability to continuously innovate and continuously provide high quality products that customers will not want to leave. Wall Street doesn't believe that's possible. Wall Street believes that quality products are flukes and that the only companies who can sustain big profits in the long term are monopolists who can make big profits even when their product quality suffers. 

So... I suspect Wall Street will eventually abandon this idea that Apple deserves higher valuations because of services. And that's correct -- Apple doesn't deserve higher valuations because of services. Instead, Apple deserves higher valuations because Apple is able to continuously, repeatedly, predictably innovate. Apple is able to fairly consistently provide high quality products that keep customers coming back. That's the real reason to buy AAPL, and it's a reason that Wall Street will never buy into. Wall street will always regard Apple as this freaky company that just keeps getting lucky. 

SpamSandwich

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

lkrupp

SpamSandwich said:

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

And by this time next year people will ask, "Covid-19, what's that? Oh, right, I had that and I didn't die like the panic mongers said I would." A single human being may be rational and not panic over stuff like this. But all bets are off when it comes to group/herd psychology. It reminds me of Issac Asimov's Foundation Trilogy in which he described psychohistory. The main character was psychohistorian Hari Seldon who predicted future human events based on this theory, like the fall of the galactic empire.

blastdoor

lkrupp said:

SpamSandwich said:

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

And by this time next year people will ask, "Covid-19, what's that? Oh, right, I had that and I didn't die like the panic mongers said I would." A single human being may be rational and not panic over stuff like this. But all bets are off when it comes to group/herd psychology. It reminds me of Issac Asimov's Foundation Trilogy in which he described psychohistory. The main character was psychohistorian Hari Seldon who predicted future human events based on this theory, like the fall of the galactic empire.

The reporting has been very inconsistent regarding the severity of this virus. I repeatedly have seen reports that 80% of cases are "mild", which I interpreted to mean "no big deal." But the other day (sorry can't find link) I saw that "mild" can include "pneumonia," which I typically would not think of as "mild." 

Also, the mortality rate seems to be holding in the 3-5% range. I had assumed it would start to come down as more people were added to the denominator. 

Finally, the fact that Italy (a Western democracy, not a communist police state) is on lockdown also makes me think this is more serious than I initially believed. 

So.... yeah. I dunno. Could be worse than I thought. 

SpamSandwich

lkrupp said:

SpamSandwich said:

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

And by this time next year people will ask, "Covid-19, what's that? Oh, right, I had that and I didn't die like the panic mongers said I would." A single human being may be rational and not panic over stuff like this. But all bets are off when it comes to group/herd psychology. It reminds me of Issac Asimov's Foundation Trilogy in which he described psychohistory. The main character was psychohistorian Hari Seldon who predicted future human events based on this theory, like the fall of the galactic empire.

In the best case scenario, it just turns out to be media-induced mass panic and not the “crisis” we’re told it is.

cgWerks

The thing is, for any kind of longer-term (ie. investment), Apple's value can't possibly change as much as it has in the last week or two. This is a great illustration of how Wall Street is gambling for the wealthy, not investment.

cgWerks

blastdoor said:
The reporting has been very inconsistent regarding the severity of this virus.

Because of ulterior motives, IMO. Probably depends on how much $$$ they have in big-pharma advertising interests, or how much they want to promote the orange-man-bad narrative.

blastdoor said:
Also, the mortality rate seems to be holding in the 3-5% range. I had assumed it would start to come down as more people were added to the denominator. 

Bingo. The denominator is unknown. I've also heard that less than 1% of all the associated deaths have been due to the virus (vs. other complications which the virus may have triggered). Of course, if you're in that group, then this is serious, as are hundreds of other things. This appears to be spreading widely, but who doesn't get some kind of flu or sickness over the winter?

sirozha

blastdoor said:

I really find it hard to believe that "this time is different" with respect to AAPL valuations. For the last 10+ years, AAPL has struggled to stay above a P/E ratio in the high teens. There's a story that Wall Street has reset valuation on AAPL due to services, but I'm really skeptical. Apple's services are fine, but they aren't class-leading. Furthermore, they are a bit of a one-off for growth because the only people who will use them are people in Apple's ecosystem. 

Wall Street has never given AAPL the valuations given to companies like Microsoft or Google and that's because those companies have platform monopolies while Apple doesn't. And Apple still doesn't have such a monopoly. If somebody wants to leave the Apple ecosystem, they absolutely can -- there are very credible alternatives. The way Apple keeps people in the ecosystem is not through coercive "lock-in" but rather through quality. If the quality slips, people can (and will) leave. 

The minority of people who give Apple higher valuations believe that Apple is unique in its ability to continuously innovate and continuously provide high quality products that customers will not want to leave. Wall Street doesn't believe that's possible. Wall Street believes that quality products are flukes and that the only companies who can sustain big profits in the long term are monopolists who can make big profits even when their product quality suffers. 

So... I suspect Wall Street will eventually abandon this idea that Apple deserves higher valuations because of services. And that's correct -- Apple doesn't deserve higher valuations because of services. Instead, Apple deserves higher valuations because Apple is able to continuously, repeatedly, predictably innovate. Apple is able to fairly consistently provide high quality products that keep customers coming back. That's the real reason to buy AAPL, and it's a reason that Wall Street will never buy into. Wall street will always regard Apple as this freaky company that just keeps getting lucky. 

I completely agree with you. Moreover, Apple hasn't demonstrated that they have a viable plan to make the recurring revenue via service subscription the lion share of their revenue and earnings. So far, I only consider Apple Pay and Apple Music to be viable services. Everything else is a fluff that is immaterial in the overall bottom line. 

Mike Wuerthele

sirozha said:

blastdoor said:

I really find it hard to believe that "this time is different" with respect to AAPL valuations. For the last 10+ years, AAPL has struggled to stay above a P/E ratio in the high teens. There's a story that Wall Street has reset valuation on AAPL due to services, but I'm really skeptical. Apple's services are fine, but they aren't class-leading. Furthermore, they are a bit of a one-off for growth because the only people who will use them are people in Apple's ecosystem. 

Wall Street has never given AAPL the valuations given to companies like Microsoft or Google and that's because those companies have platform monopolies while Apple doesn't. And Apple still doesn't have such a monopoly. If somebody wants to leave the Apple ecosystem, they absolutely can -- there are very credible alternatives. The way Apple keeps people in the ecosystem is not through coercive "lock-in" but rather through quality. If the quality slips, people can (and will) leave. 

The minority of people who give Apple higher valuations believe that Apple is unique in its ability to continuously innovate and continuously provide high quality products that customers will not want to leave. Wall Street doesn't believe that's possible. Wall Street believes that quality products are flukes and that the only companies who can sustain big profits in the long term are monopolists who can make big profits even when their product quality suffers. 

So... I suspect Wall Street will eventually abandon this idea that Apple deserves higher valuations because of services. And that's correct -- Apple doesn't deserve higher valuations because of services. Instead, Apple deserves higher valuations because Apple is able to continuously, repeatedly, predictably innovate. Apple is able to fairly consistently provide high quality products that keep customers coming back. That's the real reason to buy AAPL, and it's a reason that Wall Street will never buy into. Wall street will always regard Apple as this freaky company that just keeps getting lucky. 

I completely agree with you. Moreover, Apple hasn't demonstrated that they have a viable plan to make the recurring revenue via service subscription the lion share of their revenue and earnings. So far, I only consider Apple Pay and Apple Music to be viable services. Everything else is a fluff that is immaterial in the overall bottom line. 

... what? Like the App Store?

sirozha

cgWerks said:

The thing is, for any kind of longer-term (ie. investment), Apple's value can't possibly change as much as it has in the last week or two. This is a great illustration of how Wall Street is gambling for the wealthy, not investment.

You don't remember what happened to AAPL at the end of 2018? It was down more than 40%. There is another 20-25% to go down before we can start talking about AAPL bottoming out. 

Even if China has a handle on the Coronavirus, which I'm not at all sure about, the rest of the world will have it much much worse. China, having suffered a tremendous blow to their economy, will become extremely nationalistic when it comes to consuming goods and services. The Chinese will be avoiding buying new iPhones for several reasons: one may be their personal feeling toward the way that China was treated by the US during their crisis, and another reason is that there will be pressure from the Chinese government as well as peer pressure to buy Chinese to demonstrate your patriotism and loyalty. So, forget about iPhone sales recovering in China for at least a year. 

As for the rest of the world, the pandemic will get even worse than in China because no other nation can use such draconian measures to contain the epidemic, and no other nation can direct so much money into containing the epidemic. In the US, the armed forces can't even operate domestically without a special permission from the Congress. No other government agency can ensure the mandatory quarantine other than the US armed forces. 

When you are quarantined at home, you are not going to be buying iPhones. You will continue using the old iPhone until you feel secure about your income and your future again.

Another 25% downside on AAPL is all but guaranteed. My own prediction is that AAPL is going to drop to $150 by the end of August 2020 (once the third quarter report comes out).  

blastdoor

cgWerks said:

blastdoor said:
The reporting has been very inconsistent regarding the severity of this virus.

Because of ulterior motives, IMO. Probably depends on how much $$$ they have in big-pharma advertising interests, or how much they want to promote the orange-man-bad narrative.

blastdoor said:
Also, the mortality rate seems to be holding in the 3-5% range. I had assumed it would start to come down as more people were added to the denominator. 

Bingo. The denominator is unknown. I've also heard that less than 1% of all the associated deaths have been due to the virus (vs. other complications which the virus may have triggered). Of course, if you're in that group, then this is serious, as are hundreds of other things. This appears to be spreading widely, but who doesn't get some kind of flu or sickness over the winter?

Not sure I follow the pharma argument. 

Regarding Mr. Orange, it could very well be that COVID-19 is his Waterloo. Objective reality cannot be ignored indefinitely. 

sirozha

Mike Wuerthele said:

sirozha said:

blastdoor said:

I really find it hard to believe that "this time is different" with respect to AAPL valuations. For the last 10+ years, AAPL has struggled to stay above a P/E ratio in the high teens. There's a story that Wall Street has reset valuation on AAPL due to services, but I'm really skeptical. Apple's services are fine, but they aren't class-leading. Furthermore, they are a bit of a one-off for growth because the only people who will use them are people in Apple's ecosystem. 

Wall Street has never given AAPL the valuations given to companies like Microsoft or Google and that's because those companies have platform monopolies while Apple doesn't. And Apple still doesn't have such a monopoly. If somebody wants to leave the Apple ecosystem, they absolutely can -- there are very credible alternatives. The way Apple keeps people in the ecosystem is not through coercive "lock-in" but rather through quality. If the quality slips, people can (and will) leave. 

The minority of people who give Apple higher valuations believe that Apple is unique in its ability to continuously innovate and continuously provide high quality products that customers will not want to leave. Wall Street doesn't believe that's possible. Wall Street believes that quality products are flukes and that the only companies who can sustain big profits in the long term are monopolists who can make big profits even when their product quality suffers. 

So... I suspect Wall Street will eventually abandon this idea that Apple deserves higher valuations because of services. And that's correct -- Apple doesn't deserve higher valuations because of services. Instead, Apple deserves higher valuations because Apple is able to continuously, repeatedly, predictably innovate. Apple is able to fairly consistently provide high quality products that keep customers coming back. That's the real reason to buy AAPL, and it's a reason that Wall Street will never buy into. Wall street will always regard Apple as this freaky company that just keeps getting lucky. 

I completely agree with you. Moreover, Apple hasn't demonstrated that they have a viable plan to make the recurring revenue via service subscription the lion share of their revenue and earnings. So far, I only consider Apple Pay and Apple Music to be viable services. Everything else is a fluff that is immaterial in the overall bottom line. 

... what? Like the App Store?

App Store has been there since 2008. I was talking about the services revenue that can replace a lion share of Apple's hardware sales. 

blastdoor

sirozha said:

Mike Wuerthele said:

sirozha said:

blastdoor said:

I really find it hard to believe that "this time is different" with respect to AAPL valuations. For the last 10+ years, AAPL has struggled to stay above a P/E ratio in the high teens. There's a story that Wall Street has reset valuation on AAPL due to services, but I'm really skeptical. Apple's services are fine, but they aren't class-leading. Furthermore, they are a bit of a one-off for growth because the only people who will use them are people in Apple's ecosystem. 

Wall Street has never given AAPL the valuations given to companies like Microsoft or Google and that's because those companies have platform monopolies while Apple doesn't. And Apple still doesn't have such a monopoly. If somebody wants to leave the Apple ecosystem, they absolutely can -- there are very credible alternatives. The way Apple keeps people in the ecosystem is not through coercive "lock-in" but rather through quality. If the quality slips, people can (and will) leave. 

The minority of people who give Apple higher valuations believe that Apple is unique in its ability to continuously innovate and continuously provide high quality products that customers will not want to leave. Wall Street doesn't believe that's possible. Wall Street believes that quality products are flukes and that the only companies who can sustain big profits in the long term are monopolists who can make big profits even when their product quality suffers. 

So... I suspect Wall Street will eventually abandon this idea that Apple deserves higher valuations because of services. And that's correct -- Apple doesn't deserve higher valuations because of services. Instead, Apple deserves higher valuations because Apple is able to continuously, repeatedly, predictably innovate. Apple is able to fairly consistently provide high quality products that keep customers coming back. That's the real reason to buy AAPL, and it's a reason that Wall Street will never buy into. Wall street will always regard Apple as this freaky company that just keeps getting lucky. 

I completely agree with you. Moreover, Apple hasn't demonstrated that they have a viable plan to make the recurring revenue via service subscription the lion share of their revenue and earnings. So far, I only consider Apple Pay and Apple Music to be viable services. Everything else is a fluff that is immaterial in the overall bottom line. 

... what? Like the App Store?

App Store has been there since 2008. I was talking about the services revenue that can replace a lion share of Apple's hardware sales. 

Yeah, allegedly the thing that is making Wall Street excited is Apple Pay, Music, Arcade, TV. In other words, the things that aren't making much money (but we can imagine might do so one day). The app store, which does make money and has for a while, seems to be a big yawn for Wall Street. 

gmgravytrain

I will happily take the $335 price target, which is a lot better than $275. I don't expect all that much from Apple but it's nice to dream about as a shareholder. CoViD-19 isn't Apple's fault so I'm not going to blame anyone at Apple for the drop in share price. I think Apple is doing a decent job trying to sell products to consumers. Some things just don't always turn out as planned and this may be an unlucky year for Apple and Apple shareholders. Anyway, I'm hoping for the best and that all product sales increase by the end of the year.

cgWerks

sirozha said:
When you are quarantined at home, you are not going to be buying iPhones. You will continue using the old iPhone until you feel secure about your income and your future again. 

Even if that happened (which I highly doubt), once that's over, why wouldn't Apple recover?

blastdoor said:
Not sure I follow the pharma argument. 

Well, watch the ads between CoronaVirus hysteria on the mainstream. There is enough fear/pressure that Congress just signed $4B+ so they can improve their facilities and such (not to mention all the profit they are guaranteed and protections from any harm that might result from any 'cures' they come up with).

tmay

cgWerks said:

sirozha said:
When you are quarantined at home, you are not going to be buying iPhones. You will continue using the old iPhone until you feel secure about your income and your future again. 

Even if that happened (which I highly doubt), once that's over, why wouldn't Apple recover?

blastdoor said:
Not sure I follow the pharma argument. 

Well, watch the ads between CoronaVirus hysteria on the mainstream. There is enough fear/pressure that Congress just signed $4B+ so they can improve their facilities and such (not to mention all the profit they are guaranteed and protections from any harm that might result from any 'cures' they come up with).

You obviously aren't keeping up on current events, if you think that media "hysteria" is overblown.

cgWerks

tmay said:
You obviously aren't keeping up on current events, if you think that media "hysteria" is overblown.

If you mean, do I watch the mainstream news? No. Doing that makes you more misinformed.

tmay

cgWerks said:

tmay said:
You obviously aren't keeping up on current events, if you think that media "hysteria" is overblown.

If you mean, do I watch the mainstream news? No. Doing that makes you more misinformed.

I read a shit ton of non-mainstream news by independent journalists. You are just plain wrong about your complacency.

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