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Apple iPhone shipments in China fell a massive 35.4% in November compared to the same time last year, despite a growing smart phone market in China Credit Suisse warned in a note Thursday, This was the second monthly double digit decline for the Consumer electronics giant

IPhone 8

Credit Suisse issued a note on Thursday that iPhone shipments in China fell 35.4% in November compared to the same time last year. Of note this fall happened despite a slight increase in the Chinese smartphone market over the same time.

The analysts cited the upcoming December 15 tariiff deadline on Apple products as part of the ongoing U.S.-China trade war as a concern to Chinese consumers. .

  • Chinese iPhone sales declined 10.3% year-over-year in October, making this the second straight month of double-digit percentage drops.
  • Since the launch of the iPhone 11 family, total shipments in China are down 7.4% compared to last year, the analysts said,
  • Estimate China iPhone revenue fell by >17.5% y/y over the past three months (Sept-Nov).

Market Reaction:

The analysts wrote that a 15% tariff could increase U.S. iPhone costs by almost $70 per unit.

“Our (and we believe investors’) base case continues to factor in a favorable resolution (i.e., no tariffs); however, we think Apple would have a difficult time pushing through tariff-related price increases to U.S. consumers (~35% of CY18 iPhone units, per Gartner) without a commensurate impact on demand.”

The analysts also noted aggressive local competition from Chinese manufacturers as a reason for the drop in sales.

The analysts’ rating of Apple remains neutral, and they announced a price target of $221 per share in October.

In the second-quarter of 2019 Apple shipments declined 14% year-over-year while its market share dropped to 5.8% from 6.4% in the same period last year, according to market research firm Canalys CNBC reported.

On the positive side some of the new iPhone models had wait times in China of two to three weeks in September. Delivery times for devices can give an indication of consumer demand.

Leading Apple analyst Ming-Chi Kuo said in September that he expected Chinese demand for the new iPhones to beat expectations. “The demand for iPhone 11 in the Chinese market is stronger than that in the U.S. market,” Kuo said at the time.

When the new line launched in September, Chinese consumers had to pay a marked up price between 10.5% to 12.5% more for the iPhone 11, and 18.6% to 23% more for the iPhone 11 Pro and Pro Max compared to U.S. prices.

5G Availability Overhang?

Apple does not make an iPhone that can connect to 5G networks. 5G networks are slowly being rolled out around the world and in China they are slated to come online as early as this year.

 

Apple Q4 Earnings Recap

Apple (NASDAQ: $AAPL) Reported Earnings After Close Wednesday

$3.03 Beat $2.83 EPS Forecast AND $64B Beat $63.02 Billion forecast in revenue 

Earnings 

Apple reported fiscal fourth quarter earnings of $3.03 per share beating the expected earnings per share of $2.83, according to estimates from FactSet. Revenue came in at $64 billion vs. the $63.02 billion in revenue expected. Net income dropped to $13.7 billion from $14.1 billion..

The company’s new iPhone 11 models went on sale ten days before the company’s quarter ended on September 30, so the quarterly report included 10 days worth of sales data. Revenue from iPhones fell to $33.4 billion from $37.2 billion, while analysts were expecting $32.77 billion. A high point for the company was its services segment, which saw 13% growth to $12.5 billion, above the FactSet consensus of $12.2 billion.

Analyst estimates for the quarter 

  • Earnings of $12.86 billion, or $2.83 a share, on sales of $63.02 billion.
  • iPhone: $32.77B iPad: $4.67B Mac: $7.5B
  • "Wearables, Home and Accessories" (previously called "Other"): $5.94B
  • Services: $12.22B Share Big growth from a year ago expected for services, ahead of the Apple TV+ launch;
  • Other; and iPad, while Mac is expected to stay pretty flat and iPhone was expected to take a big dip.

 

Market Reaction > Apple. Nasdaq: AAPL

Market Reaction After hours 247.55 +4.29 (+1.76%) New ATH $252.50

Highlights

CEO Tim Cook “We concluded a groundbreaking fiscal 2019 with our highest Q4 revenue ever, fueled by accelerating growth from Services, Wearables and iPad. With customers and reviewers raving about the new generation of iPhones, today’s debut of new, noise-cancelling AirPods Pro, the hotly-anticipated arrival of Apple TV+ just two days away, and our best lineup of products and services ever, we’re very optimistic about what the holiday quarter has in store.”

Apple Products vs. Services Performance

Segment breakdown

  • iPhone: $33.4B
  • iPad: $4.66B
  • Mac: $6.99B
  • Other: $6.52B
  • Services: $12.51B

Mac lower than expected, and 5.6% lower than last year in the same quarter. That was the back-to-school quarter, not a positive sign.

iPhone quarterly revenue change

Geographic breakdown:

  • Americas: $29.3B
  • Europe: $14.95B
  • China: $11.13B
  • Japan: $4.98B
  • Rest of Asia Pacific: $3.66B

 

Back in January Apple warned on revenue, the last time it warned on revenue guidance was 15 years prior. The Cook announcement merely confirmed specualtion after guidance cuts by a number of reliant material suppliers and partner manufacturers. With the revenue decline and unit sales figures removed from its financial reporting operating margin becomes a keen focus. From here Apple has bounced to new all time high

Apple Q4 2019 Earnings

 Outlook

The key metric heading into Apple’s report was its December-quarter outlook, which gives a fuller glimpse into how Apple expects the iPhone 11 family to perform, especially heading into the crucial holiday season.

Management gave a forecast of $85.5 billion to $89.5 billion for the fiscal first quarter, whereas analysts were calling for $86.7 billion.

Recap: Apple Cut Q1 Revenue and Margin Outlook

In the first week of January an announcement through a letter from CEO Tim Cook  that the company is lowering its first quarter revenue outlook to about $84 billion,citing the macroeconomic factors from China and the Trade War and also Apple specific factors. The stock collapsed on the news in a very illiquid time, the action also caused a flash crash in the Yen as investors rushed to safety in a time when markets are closed.

Source: Apple, TradersCommunity, AlphaStreet

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