Don’t put all your eggs in one basket.
Perhaps some investors wish they’d told Apple (AAPL) that a few years back. While rivals Microsoft, Amazon and Google (Alphabet) have found tremendous success generating revenue in non-core segments (Microsoft/Windows, Amazon/retail, Google/search), Apple still relieves heavily on the prowess of its flagship product, the iPhone. While things are still good for Apple — the company has a market cap of more than $700 billion and services sales continue to grow — investors are concerned with growth prospects in China, sluggish sales of the new XR and general product pricing.
Zhang says Apple may begin facing big challenges in China. The analyst believes, “the Chinese consumer has become less enthusiastic about the iPhone after Huawei’s CFO was detained in Canada by US request. Many Chinese companies started supporting Huawei’s campaign by subsidizing employees if they bought Huawei’s phone instead of the iPhone.”
As a result of expected lower demand, Zhang “lowered (iPhone estimates) to 39 (million) units for the March quarter, and… believe[s] iPhone shipments will be down 10% y/y in C2018, as we already expect Apple might continue cutting their production for the March quarter.” The analyst says he will “review our estimates in January, but we continue to believe street estimates for March and C2019 still need to come down.” While some analysts think unit sales is a distraction — as Apple is increasingly becoming a services business through its ecosystem — it seems Zhang’s focus is on how well products (mainly the iPhone) can sell.
Overall, investors have no clear answer for Apple. Based on 31 analysts polled in the last 3 months, 16 are bullish on Apple stock, while 15 remain sidelined. The 12-month average price target stands at $219.96, marking a 40% upside from where the stock is currently trading. (See AAPL’s price targets and analyst ratings on TipRanks)