Morgan Stanley fires back at iPhone doomsday research

AppleInsider

One investment firm isn't so sold on tales of disastrous iPhone order cuts, and instead, is bullish on what they see as better than expected order volume across Apple's supply chain.

iPhone 15 Pro Max -- Apple's current sales leader

In what has become an annual tradition, reports have emerged out of China of a potentially terrible year of iPhone sales. In the spring, supply chain estimates are made, and they are invariably said to be deep cuts in estimated sales volumes, beyond what investment firms believed to be the case.

Morgan Stanley disagrees. In a note to investors seen by AppleInsider Erik Woodring notes that the firm's Greater China team has raised June quarter iPhone builds -- which will partially encompass the fall iPhone 16 cycle.

The investment firm does note that Apple has had the worst start in a calendar year in a decade. At the same time, that in recent weeks there has been an upside to previous predictions, up to 5 percent more than previously predicted.

Woodring's positive estimates are derived from conversations with Foxconn. They are then paired with strong interest in older iPhone model sales in emerging markets, and stability everywhere other than China.

The note points out that there is a March quarter revenue upside to the estimates, and potentially less June-quarter downsides than previously predicted.

Despite all this, the investment firm hasn't changed the Apple stock price target that it holds. That remains at $220.

Morgan Stanley sees a potential higher price from the possibility of a hardware subscription model arriving, and headset and other launches scaling up more quickly. Potential hazards to the price target include weaker global spending than expected, and the possibility of harsher governmental regulation focused on the App Store.

Other investment firms opinions vary, of course. Wedbush is more bullish than Morgan Stanley, with them saying that while the next two quarters may be tough, Apple should return to growth in the September quarter.

Om the other hand, Loop Capital believes that both Apple's overall revenue and its earnings per share will decline in 2024 because of iPhone sales weaknesses that will persist over the entire year. If true, that would be the first time this has happened since 2016.



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avon b7

There seem to be different stories playing out in iPhoneland here.

Not unlike the last quarter, an iPhone fall in China was partially offset by gains elsewhere but in a shrinking market. That seems to be the trend here too.

Problems in China. Apple recognised that last time around and guided for a rough quarter this time around. 

That wouldn't be an unreasonable situation

ssfe11

Every year it’s the same doomsday iPhone scenario for Apple. It’s going on 15 years now lol. The media just loves to trash Apple as it gets phenomenal attention( hint revenue). Btw Apple is a service company now that generates 72% margins. That’s why Apple grows eps 15-20% and has record free cash flow almost every quarter. 

avon b7

ssfe11 said:

Every year it’s the same doomsday iPhone scenario for Apple. It’s going on 15 years now lol. The media just loves to trash Apple as it gets phenomenal attention( hint revenue). Btw Apple is a service company now that generates 72% margins. That’s why Apple grows eps 15-20% and has record free cash flow almost every quarter. 

Last year over 50% of Apple's revenues were from iPhone alone so it isn't a 'services' company even though that is a growing revenue stream. Of course, a lot of that services revenue is also directly tied to hardware sales so hardware is still the main revenue driver. 

In this case no one is trashing Apple. The investment firm is maintaining its hold rating. 

mpantone

ssfe11 said:

Apple is a service company now that generates 72% margins.

This is utter nonsense. Read Apple's SEC filings and related financial disclosure statements.

They break down revenue by business (Mac, iPhone, iPad, Services, etc.) but no longer reveal unit hardware sales. Apple is nowhere near 72% GM.

Bart Y

During Q1 FY2024, Apple’s Services business segment itself has 72.8% gross margins, up from 70.8% in Q1 FY2023.  This applies to this segment, not overall margins.

Apple’s hardware and product segments have a 39.4% gross margin, up from 37.0% in Q1 FY2023.  

Overall gross margins were 45.9%, up from 43.0% YoY.

https://s2.q4cdn.com/470004039/files/doc_earnings/2024/q1/filing/_10-Q-Q1-2024-As-Filed.pdf

These hardware margins are pretty robust compared to any Android maker.  Xiaomi for example positively crowed about achieving a “record” 14.6% gross margin on their 2023 smartphone business.