Apple Shares Rise Despite Poor iPhone Sales

Apple shares rose nearly 6% during after-hours trading, as the market was expecting far worse than the 15% fall in iPhone sales

Abhinav Davuluri 30 January, 2019 | 9:55AM

Apple revenue forecast cut iPhone sales

Apple (AAPL)’s first-quarter results were in line with the firm’s shock guidance from January 2, when CEO Tim Cook forecast lower revenues due to a drop in iPhone, Mac, and iPad sales in China. Positively, non-iPhone segments; services, Mac, iPad, and wearables and accessories, grew 19% year over year led by stellar services and wearables sales growth.

After factoring in near-term iPhone headwinds in China and emerging markets, management’s outlook for the second quarter was relatively consistent with our expectations. Shares rose nearly 6% during after-hours trading, as we believe the market was expecting far worse. 

Morningstar equity analysts are maintaining our $200 fair value estimate for Apple, as we anticipate the firm resumes mid-single-digit sales growth from fiscal 2020 onwards following a modestly lower fiscal 2019. We assign the firm a narrow-moat, meaning we believe it to have a small competitive advantage over peers.

First-quarter revenue fell 4.5% year over year to $84.3 billion, as iPhone sales fell 15% and non-iPhone sales grew 19%. CEO Tim Cook attributed the iPhone challenges to negative foreign exchange fluctuations, as a stronger dollar made iPhones more expensive in many emerging regions, reduced carrier subsidies, Apple’s battery replacement programme that prolonged upgrades, and the aforementioned weakness in China.

While the first three factors appear more transitory in nature, we have significantly cut our iPhone unit forecasts for China going forward as we anticipate a more competitive environment despite the current tepid macroeconomic backdrop in the region and U.S.-China trade tensions.

We note the firm’s active installed base for iPhones surpassed 900 million devices, up nearly 75 million in the past 12 months, and supports our thesis of a rich and loyal customer base from which Apple can extract services and wearables revenue.

Second-quarter sales are expected to be in the range of $55 billion and $59 billion, with the midpoint implying a 7% year-over-year decline. CFO Luca Maestri cited $1.3 billion in foreign exchange headwinds along with a weaker macroeconomic climate, particularly in emerging markets.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Apple Inc205.22 USD-0.94

About Author

Abhinav Davuluri  is a Senior Equity Analyst for Morningstar

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