Tuesday’s most notable loser happens to be Apple (NASDAQ:AAPL), as the technology giant has seen its shares down well over two percent all day long. The reason for the big drop has to do with a report of production cuts for the iPhone X in the coming months. For those who might not have followed the name as much as I have, let me just say this theme isn’t exactly a new one.
According to Taiwan’s Economic Daily, Apple is cutting its calendar Q1 2018 sales forecast for the iPhone X by 40% to 30 million units. According to one Apple watcher, this is a publication that has no Wikipedia entry but has had at least one eye-catching headline before. Of course, today’s report comes from unnamed sources, and Apple has not publicly issued any quarterly forecasts for the iPhone X or the smartphone in general.
A couple of weeks ago, I explored this issue regarding the iPhone X, noting how shipping times for the device had shrunk to almost nothing, despite most analysts not expecting supply-demand balance to be reached until sometime in the next few months. As a result, I figured we’d get some panic regarding the device, and that makes sense given we usually see the Street worrying in the month or so approaching Apple earnings.
I tried to be a bit dramatic with my article’s title, and it really is a bit of sarcasm. Why? Because today’s news comes almost one year to the day of the Nikkei issuing a warning about iPhone production last year on December 30th. In the couple of weeks following that news, we got three major negative analyst notes – Wells Fargo with two major quarterly estimate cuts, Morgan Stanley cutting its full-year fiscal 2017 iPhone estimates, and a downgrade and price target cut from Barclays on smartphone growth worries.
What was the main result of all of this analyst panic? Well, as I detailed in my fiscal Q1 2017 earnings preview article, the Street cut its Q2 revenue estimates by about $750 million in the month or so approaching the earnings report. When the company came out with its actual report, Q2 guidance was in fact a little light, but part of that was offset by the fact that Q1 revenues came in more than a billion dollars above estimates. Combining the two periods, things weren’t so bad. As the chart below shows, investors shrugged off the iPhone panic reports once the new year started, and shares jumped after the earnings report. They have gone on to new all-time highs since.
(Source: Yahoo Finance)
Just like I’ve discussed in past articles, Apple doesn’t necessarily need the iPhone X to be a tremendous seller for the stock to be successful. Unit sales still seem to be doing quite well at a much higher average selling price, while Apple services is doing well, Mac and iPads are doing well, and we have the smart speaker coming up. Add in the tax reform that will help with earnings and capital returns moving forward, and Tuesday’s decline is likely a good thing for investors who want to buy Apple. Should we see more panic from analysts in the coming weeks, the stock could see a little more weakness, but that’s an opportunity to take advantage of. How many times have we heard of iPhone production cuts, and yet, going into today’s version, the stock was extremely close to its all-time high. In the long term, I remain quite positive on Apple.
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