But Apple’s still not out of the woods, says analyst Matthew Cabral.
From a note to clients that landed on my desktop Tuesday:
Government data implies big jump in July China iPhone shipments: iPhone shipments in China rose 42% y/y in the month of July (per MIIT “non-Android” data), despite a modest 3.5% y/y decline in the broader Chinese smartphone market. Recall, this improvement follows a 35% y/y drop in June monthly iPhone shipments and highlights the inherent lumpiness of monthly sell-in data; on a trailing 3-month basis, non-Android (i.e., iPhone) units were down 6.1% y/y in China as trends continue to stabilize vs. a difficult start to the fiscal year. The bounce back in July is a positive for Apple and a solid start toward above-seasonal guidance for C3Q, particularly against a backdrop of a slowing Chinese economy coupled with the re-escalation of trade tensions with the US.
Trade overhang remains in focus as 10% US tariffs approach: Despite the encouraging July data, the ongoing US/China trade dispute remains an omnipresent overhang, which we think leaves the stock range bound near-term. Absent a significant shift in the dialogue over the next few weeks, Apple’s product portfolio will be hit with a 10% US tariff on goods imported from China beginning on Sept. 1st; note the US represented ~35% of iPhone demand in CY18, per Gartner. We estimate this translates into a ~$45 COGS increase per iPhone ($100+ at 25%) that would either have to be passed through to US customers via higher prices and/or absorbed into margins; neither is good for earnings heading into this fall’s launch, especially as we believe Apple’s wider iPhone pricing strategy has already reached its upper limit.
Maintains Neutral rating and $209 price target.
My take: Down 35% in June, up 42% in July? China’s unit shipment numbers are lumpier than a bowl of wonton soup.