Morgan Stanley: Apple took a 12% hit for nothing

From a note to clients by analyst Katy Huberty that landed on my desktop Wednesday:

iPhone China installed base share gains continue through May. Following the escalation of trade tensions between the US and China in early May, Apple shares fell ~12% over the course of 2 weeks as investors feared further escalation would result in meaningfully weaker iPhone demand from Chinese consumers similar to the October-December 2018 period when more restrictive trade measures were put into place and Apple lost Chinese smartphone installed base share for three consecutive months (and negatively pre-announced for the first time in 15 years).

However, recent data from push-messaging service provider Jiguang shows May 2019 marked the 5th consecutive month of Y/Y China smartphone installed base share gains for Apple, gaining 51bps of share Y/Y, to 19.5% market share [See Exhibit 1, below].

May market share gains decelerated from 190 bps average over the prior 4 months but combined with accelerating App Store growth in China, we believe this represents a constructive data point when juxtaposed against weak China demand environment late last year and investor fears of a dramatic drop-off in near-term iPhone demand in China.

In our view, iPhone price cuts, greater usage of financing vehicles, lower VAT taxes and Chinese consumer confidence that is up ~10 points from last summer (per the National Bureau of Statistics of China) are contributing to surprisingly stable demand trends.

Cue Exhibit 1:

apple morgan stanley china nothing

Maintains Overweight rating and $231 price target. 

My take: Anyone else having deju vu?

See also: J.P. Morgan trims Apple price target $2 (0.85%)

3 Comments

  1. Fred Stein said:

    Amazingly positive news.

    Apple is like the birthday candle that can’t be blown out. As Joe B and I have been ranted for quite some, it’s all about IB.

    Even with.iPhones are getting more robust over the years and Apple supporting older iPhones longer with full software updates, Apple’s iPhone unit shipments remain robust. (despite seasonal and cyclical effect.) That is remarkable.

    Another way to look at this: Apple’s IB in China approaches 20%, nominally. But what is their % of the desirable market, i.e. middle class and above? That would be much higher.

    4
    June 19, 2019

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