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Apple shares drop as iPhone's sluggish sales raise red flags

15 November, 2018, 08:23 | Author: Sara Gill
  • Signs are growing that the iPhone is experiencing a sustained

Earlier this week, Goldman Sachs cut its outlook for iPhone unit sales as a result of Lumentum's negative guidance, writing that, "While Apple may have already contemplated some weakness in its guidance, we feel the timing and magnitude of the [Lumentum] reduction suggests Apple is seeing incrementally worse demand data".

Apple shares fell to their lowest in more than three months on Monday as three suppliers issued warnings on results that pointed to weakness in iPhone sales.

Apple also stoked worries about iPhone sales earlier this month when it said that beginning this quarter, it will no longer break down unit sales for iPhones, iPads and Macs.

JPMorgan analysts said iPhone unit sales could decline on an annual basis in both 2018 and 2019 due to weak demand in emerging markets.

Kuo's forecast follows a report last week that described two of the company's largest suppliers, Foxconn and Pegatron, being told to halt plans for additional iPhone XR production lines.

Now, that's being backed up by new reports by analysts from JPMorgan and TF International Securities.


The poor performance of the XR is lowering the prediction for total iPhone shipments as well, which are expected to be down 15-20% in the first quarter of 2019 compared to this years Q1.

'We have reduced our iPhone XR shipment estimation from 100mn units to 70mn during the new product lifecycle (4Q18 - 3Q19),' Kuo said in a note to investors. And Wall Street analysts continue to pare their expectations for the company as Apple suppliers make the outlook for the iPhone even murkier.

While Apple bulls have cheered the firm's swift transition towards its higher-margin, recurring revenue software and services businesses, such as Apple Music and the App Store, the company still generates almost 60% of its top line from its iPhone segment. "The Apple investment paradigm is moving away from a focus on device sales toward a more predictable services-driven business".

In the fourth quarter, Apple sold 46.9 million iPhones, missing analyst expectations of 47.5 million iPhones, according to FactSet.

More recently, Apple launched a new version of its operating system, iOS 12, that supports an unprecedented 28 of the company's devices, including models that went on sale in 2013. "It doesn't matter a lot how many units there are in there in terms of the overall value of what's in the cart".

"Hon Hai's gross margin probably narrowed in 3Q as lower-margin, higher-priced products such as new iPhones constituted a greater share of its revenue mix", Simon Chan, an analyst at Bloomberg Intelligence, wrote in a Nov.5 note.

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