Is there any difference between the last Apple Inc. (NASDAQ:AAPL) iPhone cycle and its massively hyped iPhone X alleged ‘super cycle?’ One cautious analyst says to put it bluntly, not much. While most investors had called for the iPhone X to magnetize new users and drive upgrade rates, it now looks like the excitement for this iPhone cycle has been overblown.
Yet, though Oppenheimer analyst Andrew Uerkwitz has reasons to be wary, he certainly acknowledges that the tech titan delivered a first fiscal quarter earnings beat for 2018 last Thursday.
For the first fiscal quarter of the new year, Apple earned $88.3 billion in revenue and $3.89 in EPS, surpassing consensus expectations of $87.5 billion and $3.85. Additionally, the company beat out Uerkwitz’s own estimates of $87.2 billion in revenue and $3.81 in EPS.
After all, this is a company who was able to realize solid year-over-year growth in both devices as well as geographic regions. Consider that the big Apple machine was able to achieve this when compared to this time last year’s 14 weeks, the first fiscal quarter of 2018 merely had 13 weeks, Uerkwitz notes. Total active device installed base hit 1.3 billion, a 30% rise in the last two years.
Apple’s problem boils down to a larger issue: guidance. The analyst wagers that with a weaker-than-anticipated guide, this speaks to a challenging “lack of momentum in new iPhone sales.”
The mid-point of the second fiscal quarter revenue guide for 2018 suggests 15% gains year-over-year, but the analyst questions just “how much Apple is benefiting from favorable currency movements.” In the year that ended last month, the U.S. dollar dipped 9% in value against the Chinese yuan and slipped 14% compared to the euro. Did the rapid-fire drop of the U.S. dollar from December magnify the impression of how much year-over-year growth Apple can fulfill in the second fiscal quarter?
Additionally, how many users will get scared off by 15% year-over-year growth in iPhone average selling prices (ASPs) and wait to upgrade?
Regarding the China factor, CEO Tim Cook commented that the region saw historic revenues with average sales per week soaring 19 year-over-year. Yet, the analyst cannot help wondering: “While the five best selling phones in urban China were all iPhones, we believe the exceptional strength was partially due to local OEMs shunning major releases in F1Q18 for fear of an ‘iPhone X super cycle.'”
Meanwhile, Uerkwitz believes Apple’s “device-service ecosystem is more vulnerable than before,” adding: “Although exciting, product-driven growth may no longer rule investor sentiment.” However, on a positive note, “Apple is still a dominant force in mobile computing with predictably loyal users and flourishing service revenues,” writes the analyst.
Ultimately, “We believe investors are beginning to accept that the current iPhone cycle will not be significantly stronger than the last one. The Apple investment thesis has shifted from one of product-led growth to predictable cash generation and shareholder returns. While we grow incrementally negative on the defensibility of the iOS ecosystem, Apple’s cash pile makes downside risk very limited,” Uerkwitz concludes.
Apprehensive that this tech player’s era of product-driven gains is in its final days, the analyst reiterates a Perform rating on AAPL stock without listing a price target. (To watch Uerkwitz’s track record, click here)
TipRanks showcases a mostly bullish analyst consensus backing the tech titan’s empire and its opportunity in the market. Out of 28 analysts polled in the last 3 months, 17 are bullish on Apple stock while 11 remain sidelined. Notably, the 12-month average price target of $194.92 implies a healthy return potential of 21%.