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June 14, 2024

Barclays Downgrades Apple on Concerns of Weakening iPhone Demand

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Jan 5, 2024

Apple’s stock took a hit this week after Barclays downgraded it due to worries about slowing iPhone sales. This marks the second downgrade for the tech giant in 2023 amid signs that the latest iPhone models are not sparking as much consumer interest.

iPhone Sales Critical for Apple’s Bottom Line

The iPhone remains Apple’s most important product, accounting for over 50% of the company’s revenue. Strong iPhone sales are critical for Apple to hit its financial targets and keep Wall Street happy.

So when analysts see indications of softening demand for the latest iPhones, they get concerned about Apple’s growth trajectory going forward.

Disappointing iPhone 15 Cycle

After a strong iPhone 14 launch in 2022, expectations were high for the iPhone 15. However, reviews have been lukewarm and adoption seems to be slowing based on supply chain checks.

Barclays analyst Tim Long noted that lead times for iPhone deliveries had declined at several carriers, suggesting weaker orders. He believes the current iPhone 15 cycle has been “disappointing” so far.

Long downgraded Apple from “overweight” to “equal weight” and reduced his target share price by $1 to $160. This comes after J.P. Morgan also downgraded Apple earlier in the week.

Muted Enthusiasm for iPhone 16 Features

Looking ahead, Barclays sees risk that the upcoming iPhone 16 may also struggle to drive momentum.

Rumors suggest the iPhone 16 will have some new features like USB-C charging, Dynamic Island standard across all models, and possibly a periscope zoom camera. However, analysts view these as incremental upgrades unlikely to spur a major upgrade cycle.

Feature Description Consumer Impact
USB-C Charging Replace Lightning port Nice to have but not game changing
Dynamic Island Interactive display area Helpful but already on iPhone 14 Pro
Periscope Camera 5x optical zoom Cool feature but niche appeal

“We see the potential for slight ASP uplift from a periscope camera module, although consumer reception to leaked specs around the iPhone 16 suggest muted enthusiasm,” Long wrote.

This could put more pressure on Apple to deliver a more compelling iPhone 17 in 2025 to reignite sales momentum.

Weak Holiday Quarter Possible

In the short term, Apple’s financial results for the holiday quarter ending December could increase anxiety if iPhone sales come in weaker than anticipated.

The company reports earnings on January 26th, a pivotal moment that could cause the stock to shift significantly in either direction based on iPhone performance over the holidays.

Impact on Suppliers

Beyond Apple itself, concerns about iPhone demand hit shares of key Apple suppliers including TSMC and Foxconn this week after the Barclays downgrade.

Given Apple’s enormous size, the ripple effects from soft iPhone sales would carry down to the entire supply chain ecosystem. Lower volumes would negatively impact many component makers in Asia.

J.P. Morgan warned that “end demand for iPhones has deteriorated significantly after the iPhone 14 launch…suggesting supply chain order cuts are coming.”

Long-Term Outlook Still Strong?

Despite recent headwinds, most analysts maintain a generally positive long-term view on Apple and expect it will continue innovating and releasing compelling new products. The stock is still widely owned by institutional investors.

Bulls believe concerns may be overblown in light of Apple’s steady expansion into services, wearables, and future categories like augmented reality and autonomous vehicles. These initiatives could balance any weakness in iPhone demand over time.

Nonetheless, Apple’s Q4 earnings report later this month will provide critical insight into current iPhone sales trajectory. The next few weeks are likely to be volatile for Apple stock as investors grapple with conflicting signals on consumer demand.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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