Apple’s biggest problem right now may not be managing through a brutal U.S. versus China trade war, but rather dealing with waning demand for its pricey iPhones.
“The bigger problem for Apple is holding onto market share in China because there is a lot of resentment against American products. That couldn’t come at a worse time for Apple (AAPL) because Apple is already seeing a significant slowdown for iPhone sales irrespective of what’s happening in China,” former Apple CEO John Sculley said on Yahoo Finance’s The First Trade.
Sculley served as Apple’s CEO from 1983 to 1993, before being unceremoniously replaced amid a string of challenging quarters. Despite being removed from Apple’s business for some time, the now venture capital investor has been known to critique the tech giant.
An Apple spokesperson declined to comment on Sculley’s remarks.
But those on Wall Street perhaps a bit more plugged into the Apple of 2019 share Sculley’s sentiment.
On Monday, Rosenblatt Securities snagged a few headlines by downgrading Apple’s red-hot stock (up 29% year-to-date) to Sell. Analyst Jun Zhang wrote that while he doesn't think Apple’s stock is a short, the company will face “fundamental deterioration” over the next six to 12 months.
Zhang added that he thinks new iPhone sales will be disappointing, and expects service revenue growth to decelerate.
“We think fundamentally that iPhone sales won’t see much improvement, and we have more concern for the second half,” Zhang recently told Yahoo Finance. Zhang also thinks new 5G smartphones coming soon from Alphabet’s Google will pressure Apple’s iPhone market share.
Apple sales and EPS estimates slashed
Just a few days before Zhang’s call, Citigroup analyst Jim Suva came out firing again with double barrels on Apple ahead of its July 30 earnings release.
“We remain below street on sales and EPS estimates and expect share price volatility in the months ahead as consensus estimates calibrate lower. Recall we slashed estimates post our Asia trip in May which showed a less favorable brand image desire for iPhone in China and China representing 18% of Apple sales which we believe could be cut in half,” Suva wrote in a July 2 note.
Indeed Suva’s note to clients on Apple from late May got the market’s attention.
Suva slashed his second half 2019 iPhone unit sales estimates by about 7 million due to concerns demand in China. The analyst subsequently reduced his sales and profit estimates “materially” on the company.
“We are proactively slashing our iPhone unit sales as we believe the US/China trade situation will result in a slowdown of Apple iPhone demand in China as China residents shift their purchasing preference to China national brands. Our independent due diligence shows a less favorable brand image desire for iPhone which has very recently deteriorated,” Suva said at the time.
Interestingly, Suva still rates Apple a Buy into earnings day — sounding more keen on the valuation than any near-term re-acceleration in sales or profits.
Warned Suva in his latest missive, “So we don’t see multiple compression but rather see risk that consensus is simply too high. We maintain our Buy rating but expect share price volatility ahead.”
And here comes July 30.