Apple's China issues 'overblown,' Services underrated notes JP Morgan

Investor concerns about Apple's fortunes in China are "somewhat overblown," analysts from JP Morgan suggest, with shareholders also accused of failing to see the potential revenue generation of Apple's Services arm.

JPMorgan is lowering its near-term forecast for iPhone shipments as part of a wider outlook for global smartphone shipments as a whole, an investor note seen by AppleInsider reads. The firm however considers the market uncertainty to be "cyclical in nature," in part driven by the ongoing trade standoff between the United States and China.

"We think the low investor positioning given recent erratic behavior of the US administration warrants exposure to trade-sensitive market segments," writes JPM, "primary amongst them Apple which would benefit not only from a stronger global growth outlook but also removal of the overhang relative to targets."

The forecast for the continuous quarters from Q2 2019 to Q4 2019 is a downward shift of 4% in shipments, albeit with cyclical macro headwinds, with a marginal tweak to the 2020 and 2021 shipment forecasts. Shipment growth forecasts are maintained for 2020 and 2021, "led by larger degree of spec upgrades planned for September 2020," namely the 2019 iPhones.

The ongoing US-China situation-driven concerns by investors are "somewhat overblown," given JPM's observance of a continued decline in iPhone shipments in China over the last few years. Apple is seen to be navigating the issue "consistently" by leveraging its presence in other developed markets, and the sanctions challenges for Huawei may present an opportunity Apple could capitalize on with "adequate promotions."

On the subject of Services, JPM acknowledges the install base concerns are valid, but points out the growth in services revenue per unit is a greater driver of Services revenue, possibly twice as large as increasing the install base.

"We see considerable headroom for growth in Services revenue tracking at $2 per month over the 1.4B installed base," reasons JPM. Three opportunities are identified as being beneficial, with the first, subscriptions like Apple News+, implying up to $60 billion in increased revenue based on one per device.

The Apple Watch App Store is also a good potential revenue source, monetizing an install base of roughly 100 million devices by 2020. Lastly, Services on utilities has JPM predicting consumers being willing to spend as much as ten times the current services revenue per unit over time.

"We believe growth in revenue/unit will partly offset the impact of lengthening replacement cycles," JPM suggests.

JP Morgan currently rates Apple's stock as "Overweight," with a one-year price target of $192.74. For December 2019, the price target has gone down from $235 to $233.

3 Comments

gmgravytrain 884 comments · 8 Years

About 5 years ago

There's not much positive info in this report. Apple stock will remain underrated and big investors will continue to sell off their Apple stock at a moment's notice. Apple's value lives and dies with iPhone sales no matter what Apple says. Microsoft is now worth a lot more than Apple, not because that company makes more revenue and profits. It's because big investors have more faith in Microsoft than they do in Apple. Who wants to get burned again by Apple's flakiness? The stock moves like a roller-coaster that slowly goes up and quickly goes down. After seeing Apple's stock performance last year, I would think it would leave any investor with a bitter taste in their mouth. Not too many stocks can lose $450B in value in a month or so but Apple somehow managed to do it

AAPL is really not a stock to be trusted. I can continue owning it thanks to the decent dividends, but other than that, I understand why most big investors will stay clear of Apple. It's always going to be the major tech stock to get hit the hardest when there's some rumored trouble with the global economy. Apple stock is always under pressure for some reason or another and that's quite annoying for any investor to have to listen to every week. Maybe Apple stock will go up, but I wouldn't bet the farm on it happening because declining iPhone sales will weigh heavily on the stock and I doubt Services revenue will offset those losses. Big investors certainly don't believe Services will carry Apple. The stock still carries a crappy P/E for a tech stock and that's unlikely to improve no matter what Apple tries to do.

DAalseth 3035 comments · 6 Years

About 5 years ago

gmgravytrain said:

There's not much positive info in this report. Apple stock will remain underrated and big investors will continue to sell off their Apple stock at a moment's notice. Apple's value lives and dies with iPhone sales no matter what Apple says. Microsoft is now worth a lot more than Apple, not because that company makes more revenue and profits. It's because big investors have more faith in Microsoft than they do in Apple. Who wants to get burned again by Apple's flakiness? The stock moves like a roller-coaster that slowly goes up and quickly goes down. After seeing Apple's stock performance last year, I would think it would leave any investor with a bitter taste in their mouth. Not too many stocks can lose $450B in value in a month or so but Apple somehow managed to do it

AAPL is really not a stock to be trusted. I can continue owning it thanks to the decent dividends, but other than that, I understand why most big investors will stay clear of Apple. It's always going to be the major tech stock to get hit the hardest when there's some rumored trouble with the global economy. Apple stock is always under pressure for some reason or another and that's quite annoying for any investor to have to listen to every week. Maybe Apple stock will go up, but I wouldn't bet the farm on it happening because declining iPhone sales will weigh heavily on the stock and I doubt Services revenue will offset those losses. Big investors certainly don't believe Services will carry Apple. The stock still carries a crappy P/E for a tech stock and that's unlikely to improve no matter what Apple tries to do.

or to put it more simply Apple's value will be beaten down by the panicky sheep commonly called investors. None of this has anything to do with Apple, just the know-nothings that drive stock prices. Apple is down while pure BS like Bitcoin is up. That's why I don't invest.

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