Technology

Kuo On iPhone XS, XS Max, XR Shipments: ‘Worst’ Will Be Over Soon

iPhone shipments
Image Source: Apple.com (screenshot)

The slowdown in iPhone sales has long been expected. And, it was confirmed when Apple, earlier this month, lowered its revenue guidance for the first quarter. Now, however, trusted Apple analyst, Ming-Chi Kuo notes that the “worst” will be over soon for Apple in terms of iPhone shipments.

iPhone shipments to pick up

TF International Securities analyst, Ming-Chi Kuo was among the first analysts to predict slow iPhone sales. For the holiday quarter, Kuo lowered the estimates by 20% in mid-December due to a weak demand for the new iPhones – iPhone XS, XS Max and iPhone XR – in China.

Now, in the latest report, Kuo claims that good times will return for Apple when it comes to iPhone sales. Kuo predicts that iPhone shipments after March will be higher than the consensus estimates.

Kuo expects calendar first quarter (March quarter) iPhone shipments to be in the 36-38 million range. Apple’s non-Chinese markets are expected to benefit from the trade-in program. For the second calendar quarter, the analyst expects iPhone sales to be flat quarter-over-quarter, and be between the 34-37 million range. This would be a 15% drop from the same quarter last year, but an increase of about 30% from the expected iPhone sales in the first quarter.

For the second half of the year, Kuo expects a recovery, but the sales would mostly be flat when compared to 2018. Kuo believes the iPhone shipments would benefit from the trade-in programs, strong replacement demand and strong sales in the European region. However, if the US-China trade war worsens, then we may not see the expected recovery in the iPhone shipments.

“We believe the downside risks of share prices for the Apple and iPhone supply chain are limited in the near term given that 2Q19 iPhone shipments will likely be better than the market consensus,” Kuo said in a note (obtained by MacRumors).

For 2019, Kuo maintains his prediction of the 188–192 million iPhone shipments, above the consensus estimate of 180 million.

Slow iPhone sales – who to blame?

Apple will report its fiscal first quarter earnings tomorrow. The iPhone maker has already announced that it expects $84 billion in revenue, less than their original guidance range of $89-$93 billion. Apple blamed slow iPhone sales for the lower guidance, saying it accounted for “all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline.”

Specifically, the company cited primarily the Chinese iPhone market but other factors as well for slow iPhone sales, such as fewer carrier subsidies, weak economic conditions in emerging markets and foreign exchange headwinds. The company noted that a temporary discount on battery upgrades also played a role in the slow iPhone upgrade.

Apple came up with a battery upgrade program as an apology for throttling the older iPhones without informing the owners. According to the company, it witnessed about 11 times more battery upgrades than it expected.

Buy Apple ahead of earnings

It has been a rough few months for Apple, which last year became the first U.S. company to the hit $1 trillion stock market value. Since its peak in October, its shares have dropped over 30%, including the 10% drop after the company lowered its revenue guidance earlier this month. This was Apple’s steepest one-day drop since 2013.

Also, Apple’s stock has not participated in the recent rally. Year to date, Apple’s shares are flat, while the S&P 500 is up about 6%. So, a big question now that every Apple investor has is how to trade Apple’s stock ahead of the earnings.

Morgan Stanley feels it is a good time to buy the stock. “We believe the recent pullback is an attractive entry point given upcoming services launches and shares already pricing in extremely cautious iPhone replacement cycle and average selling price headwinds,” said analyst Katy Huberty, according to CNBC.

Further, the analyst notes that most have already lowered their expectations for Apple’s December quarter numbers. So, the real numbers from Apple won’t further push the stock down. What will matter the most, however, will be Apple’s guidance for the next quarter.

Huberty notes that the guidance for the next quarter will form the base for the predictions for the remainder of the year. Thus, it is imperative for Apple to come up with a “better than feared revenue outlook” to ensure recovery in the stock.

Morgan Stanley has an Overweight rating on the stock with a 12-month price target of $211.