Apple Inc. (NASDAQ:AAPL) stock continued to falter on Tuesday, reaching its lowest level in about three months. Although the Apple earnings results for FQ1 2018 are set for release later this week, the big news for the company has been repeated articles and concerns that sales of the iPhone X are coming up far short of Apple’s and the Street’s expectations.
Now one analyst has suggested that we may never see another iPhone super cycle ever again, and that could very well mean that Apple stock is about to get very “boring.”
“Legacy models” do not make an iPhone super cycle
In a note this week, CLSA analyst Nicolas Baratte said that Apple’s “legacy” iPhone models will likely outperform in the first half of this year. That means suppliers which are exposed to older models will likely outperform suppliers focused on the iPhone X.
He also offered up metrics from Apple’s supply chain. He estim+ates fourth-quarter iPhone X builds at about 40 million as the production bottlenecks were resolved in late November. This enabled the company to satisfy holiday-related demand. However, the result of all those extra builds in December seems to have left plenty of extra iPhone X inventory at the end of the month, he added, which “should lead to a very large decline” in builds during the March and June quarters.
He estimates iPhone 8 and 8 Plus builds at about 23 million to 24 million total during Q4, but he warned that there will likely even be excess inventory of these models because demand shifted toward the “legacy” iPhone 7 and 6s. As a result, expects iPhone 8 and 8 Plus builds to fall in the March quarter as well, while iPhone SE, 6s and 7 builds are revised higher.
He added that consensus seems to expect total iPhone builds of 60 million to 62 million in the March quarter. However, his observations in Apple’s Asia supply chain suggest builds of no more than 50 million, plus about 10 million in channel inventory.
Apple stock getting “boring”?
Baratte had some suggestions for Apple regarding future iPhone models as well. He suggested that the company “sell super-expensive OLED models” for $1,000 to $1,300 to help lift revenues and margins while volumes are restricted due to the high price. He also suggested a “really new LCD model” priced between $750 and $850 “to limit the drift to “Legacy” models, also helping lift revenues and margins, although volumes are limited just to replacement buyers.
He warned that now might finally be the time to “accept” that there will never be another iPhone super cycle again and that Apple will only sell 210 million to 220 million annually “forever.” In this scenario, Apple stock would become “boring,” he added.
It’s looking like more and more investors are buying into bearish sentiment for Apple stock, all because fiscal 2018 isn’t turning out to be an iPhone super cycle as many expect. CNBC noted that Apple stock was testing two key support levels set in November and December, and it already broke below the $166.75 level. That had been the 100-day moving average since the 2016 election.
iPhone numbers still too high?
In her own note today, Deutsche Bank analyst Sherri Scribner said she feels that iPhone estimates for the March and June quarters are still too high. Although Apple stock has been diving lately, she doesn’t feel that it adequately reflects lower-than-expected iPhone demand. She believes Apple stock has been supported by the bull market and also passive investing strategies.
She does expect Apple stock to “re-rate modestly lower over the next few quarters as iPhone numbers disappoint.” She continues to blame the iPhone X’s high price, along with elongated upgrade cycles and a lack of compelling enough new features for the lack of an iPhone super cycle this year.
Apple stock slumped more than 1% in intraday trading on Tuesday, falling as low as $164.70.
