From a note to clients by analyst Samik Chatterjee that landed on my desktop Monday:
We are trimming our earnings estimates as we now forecast modest y/y declines in iPhone shipments for both calendar 2018 and 2019 on account of a weaker macro backdrop in emerging markets, which is driving both softer consumer confidence in certain countries, as well as the headwind of the stronger USD making phones more expensive in local currencies.
Led by the softer backdrop in the EMs [emerging markets], the better than expected response to the iPhone XS and the iPhone XS MAX (the higher-end phones) is unable to entirely offset the more tepid than expected consumer response to iPhone XR (launched recently).
While the launch of the XR is now giving consumers greater visibility into the product in the iPhone lineup they want to buy, and is driving pent up demand towards both XS MAX and XS, we believe the challenges faced by the consumer in the EMs is likely leading to deferral of some of the purchases, which will drive a stronger pent up demand when macro conditions improve.
Net, we are lowering our annual iPhone volume expectations by 2 mn for CY18 (214 mn), 10 mn for CY19 (208 mn), and 10 mn for CY20 (210 mn), respectively; however, our earnings forecast only declines by a modest $0.10 in each of FY19 and FY20 (Sep-end) led by the outlook for richer mix of phones sold.
Maintains Overweight rating, lowers price target to $266 from $270.
My take: I’m skeptical about this “more-tepid-than-expected-consumer-response-to-iPhone-XR” meme. I always thought the right-priced XR would be a point-of-sale winner, and according to the Apple staff I dealt with In my several visits to the Holyoke (Mass.) Apple Store this weekend, their hot-seller was indeed the iPhone XR.
Below: The trimmed estimates.
Click to enlarge.