Is Weakening iPhone Demand in China Impacting Apple Inc (AAPL)?

By Carrie Williams

apples-future-following-china-sales-weaknessThe slowdown in the growth of iPhone handsets of Apple Inc. (NASDAQ: AAPL) in Chinese markets seems to be casting a grim shadow on the overall growth prospects of the company. According to the semi-annual Evidence Lab Global Smartphone Survey conducted by UBS, the interest in iPhone7 in China was lower when compared to that of iPhone 6 or 6s, indicating a lower retention rate for F17. Yet in U.S the interest in iPhone 7 remained strong with a rise in demand for the iPhone Plus.

According to UBS analyst Steven Milunovich, the slowdown in the iPhone demand in China was caused due to supply constraints for the iPhone 7 in China, as well as the increasing popularity of domestic brands like Oppo, Vivo, and Huawei because of lack of innovation from Apple. In addition, offline selling of domestic handsets also helped in giving them a leg up in the smartphone market. Chinese market currently accounts for nearly 30% iPhone sales.

Milunovich believes that with only 43% of F15 buyers upgrading the iPhone and new users down by 10%, Apple would have only single digit growth in F17. Hence, Milunovich estimates that if the China units are down by 5% in F17, the rest of world (RoW) would need to grow by a reasonable rate of 10% in order to reach an overall 6% growth. However, Milunovich also warns that the growth might be limited in case users decide to wait for the release of iPhone8. The brokerage firm has a ‘Buy’ rating and $127 price target for AAPL, which is an upside of 17.12% from the last close of $108.43.

Meanwhile, AAPL was rife with sellers post the Trump presidency win due to the ambiguity pertaining to Trump’s policies. Apple was hailed as the poster child for everything wrong with corporates during Trump’s campaign, especially regarding the outsourcing of production to China as well as APPL’s stance on data protection.

However, the stock seems to be poised to push back, thanks to the impressive surge of sales reported for MacBook Pro. The new MacBook Pro’s important upgrades like multitouch glass toolbar that allows the user to interact with software using their fingers, MacOS Sierra operating system, and faster processor resulted in a mammoth sale that was equivalent to 80% of combined 2015 and 2016 MacBook sales within just five days. This could very well turn out to be the nudge needed for AAPL to break past the 52-week high of $119.92 in the next few days.

Overall the analysts on the Street seem very optimistic, with a consensus rating of a Strong Buy and a $130.47 price target, according to TipRanks. The price target being an upside of 20.33% from the last close price of the stock on Friday.