Apple shares fell 4% after Barclays downgraded them from overweight to underweight and reduced its price target from $165 to $154. Analyst Tim Long at Barclays noted weakness in iPhone sales in China as one reason.
He cautioned that growth of profitable services businesses could halt due to increasing regulatory scrutiny.
Barclays downgrades Apple to underweight
Apple was one of the biggest tech stocks and contributed significantly to S&P 500 gains last year, yet could face challenges this year as an ongoing antitrust trial unfolds in the US regarding Google’s $26 billion payment to Apple in 2021 to keep Google search as its default on Apple devices.
Tim Long of Barclays downgraded Apple stock from equal weight to underweight due to forecasted weak iPhone sales in China and reduced price target of $160 which represents a 17% annual decrease.
Apple now has five sell ratings or equivalent, compared to 34 buy ratings and 14 holds. Apple stock plummeted on Tuesday due to this bearish outlook, wiping away over $100 billion of market value overnight and posting its biggest one-day decline for months.
China iPhone sales continue to lackluster
As Apple nears $3 trillion in market value, its stock has begun to face some daunting headwinds. A rare bearish projection from a Wall Street analyst sent Apple shares plummeting, wiping over $100 billion off their value and precipitating this massive decline.
Tim Long of Barclays analysts noted in a note to clients that Chinese authorities had banned government workers from purchasing iPhone 15. His prediction: sales for the new iPhone 16 will also see significant slowdown due to no compelling features or upgrades expected in it.
As regulatory scrutiny intensifies, Apple anticipates revenue from their services business will also decline; this is especially concerning as its gross margin is over twice that of hardware business. Shares of SK Hynix and Samsung (both key providers to Apple) which supply memory chips have seen their values decline between 2.5% to 3% since last October.
Apple’s services business is slowing down
World-famous tech company Apple continues to experience setbacks. Revenue from iPhone sales dropped 1% year-on-year in June quarter sales, while Apple informed suppliers it expects their shipments will remain flat this year.
As such, investors have focused their attention on Apple’s services business which has doubled in size over recent years to account for almost half of total revenues. This segment offers higher margins than hardware products with predictable recurring billing arrangements, offering Apple new ways to monetize its installed base of users.
Tim Cook gave analysts a warning this week on a call, suggesting growth was slowing for Apple’s service division. He pointed to disappointing iPhone 15 sales in China as well as its ban for use by state employees as reasons for its poor performance, forecasting app store investigations could intensify further this year.
Apple’s iPhone sales will remain weak in 2024
Barclays predicts Apple’s iPhone sales will remain lackluster through 2024, according to analyst Paul Long. Apple’s most recent offering – iPhone 15 – had dismal sales, and any successor models likely won’t spark significant increases in demand, Long said.
Analysts expect the services business of the company to continue its decline, so their price target has been decreased from $161.
Apple is facing increasingly fierce competition from local rivals like Huawei and Xiaomi, which recently overtook Apple sales in China. Furthermore, a potential ban of iPhone use by government employees would significantly decrease sales within that country.
On Wednesday morning in Asia, news of Apple’s declining market value sent shares of Apple suppliers lower. Taiwan Semiconductor Manufacturing Company – maker of Apple’s advanced processors – saw its shares decrease 2.5% while Foxconn saw theirs decline 1.3%, wiping away more than $100 billion off Apple’s market cap and marking one of its largest single day drops since October – accounting for nearly half of last year’s gain in market value.
