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Apple (NASDAQ:AAPL) is facing a series of negatives in China — slowing demand, geopolitics, rising competition and economic weakness — that are the worst in five years and have resulted in a “black cloud” hanging over the tech giant, Wedbush Securities said.
“For the March quarter China iPhone units will be likely down moderately again YoY as this remains a major growth drag on the overall growth story for Apple in the near-term,” analyst Dan Ives said in a note. “Huawei share gains, geopolitical tensions (shadow government ban in some Chinese agencies), and a softer China economy has created a difficult selling environment for Apple in China again this quarter.”
Ives has an Outperform rating and $250 price target.
Even amid the negative picture in China, Apple has supposedly held its iPhone builds “steady” compared to initial projections at the start of the year, Ives said, citing recent data checks.
“While not a positive result per se, we believe this result is better than had been feared in light of concerns share loss in China will heavily weigh on Apple results/units,” Ives explained. “We believe while China has clearly performed below expectations, other regions including the US, Europe, and India we believe have been relatively strong in the March quarter and will help balance out a soft China number.”
The recent visit to China by Apple Chief Executive Tim Cook — his third known visit in the past year — is important as Apple needed to show it needs China and China needs Apple, give that 20% of sales come from the region and much of the tech giant’s supply chain is in the country, Ives added.
Despite the negativity surrounding the $2.6T company, Ives is bullish on the long-term and believes if Apple can get through the next two quarters, it will be easier on the other side.
“The Street is bracing for a brutal March quarter and soft June guidance which we believe could be the last few quarters of this growth storm as Apple starts to see a renaissance of growth heading into the September quarter and FY25,” Ives said. “While some patience is required to navigate this China weakness, we believe the seeds for an Apple growth turnaround are being planted in the field.”
Apple is slated to report its next quarterly results on May 2. A consensus of analysts expect the tech giant to earn $1.51 per share on $90.92B in sales.
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