With iPhone sales doubling in China, Rod Hall sees ‘stagnation’ ahead for Apple

How did Goldman Sachs’ top Apple analyst become the Street’s doomsayer-in-chief?

From a note to clients that landed on my desktop last Friday:

CAICT data for November handset shipments in China came in weak again with overall shipments at 29.6m down 15% Y/Y, but up 13% M/M. Within that, shipments from international brands (we believe a majority were likely from Apple) were 6.9m in November (+99% Y/Y and +18% Q/Q), up from 1.8m/5.8m units in Sept/Oct.

We remind investors that the iPhone 12 & 12 Pro became available on Oct 30, whereas the iPhone 12 mini & 12 Pro Max began available on Nov 13. The aggregate of international brands shipments for the past 3 months to November was 14.5m units which is only flat Y/Y.

This is in the context of what we believe are consensus expectations for higher Apple growth in China driven by 5G adoption. In our opinion, the overall market weakness that we continue to see in China may be beginning to translate into higher end demand stagnation at Apple.

We also note that lower end market strength in China is important for absorption of refurbished/2nd hand iPhones which could have a negative effect on device resale pricing and the trade-in value that new iPhone buyers experience.

Maintains Sell rating and (soaking wet) $75 price target. 

Cue Exhibits 4 and 5 (click to enlarge):

apple china iphone rod hall

My take: This note, which slipped by me last week, is the fourth I’ve seen based on the same Chinese government data. It’s the only one that found, in a 99% Y/Y bump, a negative effect on iPhone resale values.

See also:

13 Comments

  1. Romeo A Esparrago Jr said:
    Doomsayers gotta doomsay.

    2
    December 15, 2020
    • Romeo A Esparrago Jr said:
      Right on Mr. Doyle!
      Rod Hall will likely reduce his forecast AAPL share target by even more with that positive news. Seriously.

      1
      December 15, 2020
  2. Gary Morton said:
    For some the cup is half full or half empty. When Mr. Hall looks at a fairly full cup, he gasps…my gosh that cup is nearly one quarter empty.

    1
    December 15, 2020
    • David Emery said:
      DIsagree with that characterization. It implies some recognition of the state of the glass. It’s more like “grabs the glass, drinks some milk, THEN claims the glass is emptying” 🙁

      0
      December 15, 2020
  3. Bart Yee said:
    I bet Hall will say “the 230M order is much too optimistic and that Apple would “only” sell 210-215M, simply a “modest” 5-7% bump from FY2019. Apple would then have an over supply of parts and excess iPhone inventory leading to unit ASP erosion as Apple would be forced to drop prices to clear that excess before new 2021 models in Fall 2021.”

    Further, “GS research analytics discount Apple’s ability to expand the India and China markets substantially since pandemic recovery worldwide and regionally will be major headwinds on demand for at least another 3-4 quarters. Clearly, these developments will overshadow any gains in Wearables, M1 Macs, and Services for the same time frame.”

    “Maintain Sell rating and reduce price target to $65”.

    There, see, it’s not hard to sound authoritative and predict the future through dark colored lenses.

    1
    December 15, 2020
    • Alan Birnbaum said:
      Good Ole Rod – The best contrarian sign of them all !
      After reading your imitation, who needs the real thing ?

      0
      December 15, 2020
  4. Robert LoCascio said:
    His reports are great for a few laughs. But seriously, how is that guys like him and Sacconghi still have jobs? Does anyone at GS and Bernstein give them performance reviews – like, umm, perhaps their clients?

    0
    December 15, 2020
  5. Michael Goldfeder said:
    The root problem of the glass is half full for Rod, is that he starts off by using a small paper dixie cup normally associated with rinsing after brushing your teeth in the morning and evening.

    0
    December 15, 2020
    • David Emery said:
      More like a small dixie cup like you find in your doctor’s bathroom for sample collection… 🙂

      1
      December 15, 2020
  6. Jonny Tilney said:
    A few staggeringly good quarters and the subsequent annual compares may become a struggle. Being the ‘Eeyore’ of Apple (Winnie the Pooh fame) he never notices or even recognises the good bits until they are in the past.

    0
    December 15, 2020
  7. John Konopka said:
    Every silver lining has its cloud, if you look hard enough.

    0
    December 15, 2020
  8. Mark Visnic said:
    Rod Hall still doesn’t understand Apple’s business model. His analysis is frozen in time to when Apple was broadly perceived as a hardware company with a blockbuster film business model. He is suggesting a reprise of FY 2015 when the larger format iPhones pulled forward demand and lengthened the upgrade cycle and hurt Apple in FY 2016. Apple no longer counts on iPhones for 75% plus of total sales and has both a much larger installed base and a large and growing services revenue segment. If the 1Phone 12 Pro is pulling demand forward, it will redound to Apple’s benefit in many more predictable ways than in 2015.

    I have some hypotheses on why he takes the positions he does but, it is clear his angle is not based on being an accurate forecaster of share price and invest-ability.

    1
    December 15, 2020

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