Possible 5G 'iPhone 12' delays drive UBS to cut AAPL target to $335

iPhone shipments plunged more than 60% year-over-year in February in China due to the COVID-19 outbreak.

Apple shipped fewer than 500,000 iPhone units in February due to coronavirus-related production issues, UBS analyst Timothy Arcuri estimates, forcing an Apple stock price target cut to $355.

Sales of Apple's iPhone plugged 61% year-over-year in China in February, largely due to closed manufacturing plants and parts of the country being in total lockdown due to COVID-19, according to a research note written by UBS' Timothy Arcuri, and seen by AppleInsider.

Arcuri also cut his March quarter iPhone prediction to 40 million from 43 million shipments. "Consensus iPhone estimate of 43 million is only 500,000 below last year, but the data implies close to 2 million impact in China alone," Arcuri wrote.

The more concerning matter for Apple appears to be ongoing supply chain struggles in China. Arcuri writes that if significant production issues persist into June, global demand could be impacted and Apple may need to delay its expected 5G "iPhone 12" in the fall. Based on a current outlook, Arcuri expects production to return by the end of the second calendar quarter and for fall iPhones to launch on-time, however.

In a research note on Friday, Arcuri reported that Apple built out about 36 million iPhone units in the quarter. That's down from UBS' quarterly estimates of 47 million units, but actually a 4% increase year-over-year.

Apple isn't the only one seeing the effects of the coronavirus outbreak. Per monthly Chinese government data, the overall smartphone market was down 55% in February compared to the same time last year, an accelerated slide from 39% in January. Like with iPhone production, that's attributable to production issues and domestic demand in the wake of lockdowns.

AAPL is still a buy according to Arcuri, though the analyst has lowered his 12-month price target to $335 from $355, based on a reduced multiple of 20x, down from 21x, though EPS estimates remain unchanged.

After taking a beating over during a wider financial plunge on Monday, Apple's share price has bounced back to just over $281 as of 10:15 A.M. Eastern Time.

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18 Comments

blastdoor

said about 4 years ago

I really find it hard to believe that "this time is different" with respect to AAPL valuations. For the last 10+ years, AAPL has struggled to stay above a P/E ratio in the high teens. There's a story that Wall Street has reset valuation on AAPL due to services, but I'm really skeptical. Apple's services are fine, but they aren't class-leading. Furthermore, they are a bit of a one-off for growth because the only people who will use them are people in Apple's ecosystem.

Wall Street has never given AAPL the valuations given to companies like Microsoft or Google and that's because those companies have platform monopolies while Apple doesn't. And Apple still doesn't have such a monopoly. If somebody wants to leave the Apple ecosystem, they absolutely can -- there are very credible alternatives. The way Apple keeps people in the ecosystem is not through coercive "lock-in" but rather through quality. If the quality slips, people can (and will) leave.

The minority of people who give Apple higher valuations believe that Apple is unique in its ability to continuously innovate and continuously provide high quality products that customers will not want to leave. Wall Street doesn't believe that's possible. Wall Street believes that quality products are flukes and that the only companies who can sustain big profits in the long term are monopolists who can make big profits even when their product quality suffers.

So... I suspect Wall Street will eventually abandon this idea that Apple deserves higher valuations because of services. And that's correct -- Apple doesn't deserve higher valuations because of services. Instead, Apple deserves higher valuations because Apple is able to continuously, repeatedly, predictably innovate. Apple is able to fairly consistently provide high quality products that keep customers coming back. That's the real reason to buy AAPL, and it's a reason that Wall Street will never buy into. Wall street will always regard Apple as this freaky company that just keeps getting lucky.

SpamSandwich

said about 4 years ago

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

lkrupp

said about 4 years ago

SpamSandwich said:

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

And by this time next year people will ask, "Covid-19, what's that? Oh, right, I had that and I didn't die like the panic mongers said I would." A single human being may be rational and not panic over stuff like this. But all bets are off when it comes to group/herd psychology. It reminds me of Issac Asimov's Foundation Trilogy in which he described psychohistory. The main character was psychohistorian Hari Seldon who predicted future human events based on this theory, like the fall of the galactic empire.

blastdoor

said about 4 years ago

lkrupp said:

SpamSandwich said:

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

And by this time next year people will ask, "Covid-19, what's that? Oh, right, I had that and I didn't die like the panic mongers said I would." A single human being may be rational and not panic over stuff like this. But all bets are off when it comes to group/herd psychology. It reminds me of Issac Asimov's Foundation Trilogy in which he described psychohistory. The main character was psychohistorian Hari Seldon who predicted future human events based on this theory, like the fall of the galactic empire.

The reporting has been very inconsistent regarding the severity of this virus. I repeatedly have seen reports that 80% of cases are "mild", which I interpreted to mean "no big deal." But the other day (sorry can't find link) I saw that "mild" can include "pneumonia," which I typically would not think of as "mild."

Also, the mortality rate seems to be holding in the 3-5% range. I had assumed it would start to come down as more people were added to the denominator.

Finally, the fact that Italy (a Western democracy, not a communist police state) is on lockdown also makes me think this is more serious than I initially believed.

So.... yeah. I dunno. Could be worse than I thought.

SpamSandwich

said about 4 years ago

lkrupp said:

SpamSandwich said:

Arcuri needs to take a better look at the landscape right now. The whole world is quickly coming to a standstill because of panic over the Coronavirus. Shelves on stores are empty. People are staying at home. Irrational (and some rational) fear is everywhere.

I think the world is basically going to stop functioning for several more months.

And by this time next year people will ask, "Covid-19, what's that? Oh, right, I had that and I didn't die like the panic mongers said I would." A single human being may be rational and not panic over stuff like this. But all bets are off when it comes to group/herd psychology. It reminds me of Issac Asimov's Foundation Trilogy in which he described psychohistory. The main character was psychohistorian Hari Seldon who predicted future human events based on this theory, like the fall of the galactic empire.

In the best case scenario, it just turns out to be media-induced mass panic and not the “crisis” we’re told it is.