Shares of Apple (AAPL) fell greater than 6% earlier this week after Chinese language officers advised workers at central authorities businesses to not use iPhones at work. The discharge of a brand new high-end cellphone from the Chinese language firm Huawei additionally put extra strain on Apple and it got here simply days earlier than the corporate launched the brand new iPhone 15.
However Morgan Stanley analyst Eric Woodring wrote on Friday that these headlines are “extra bark than chunk,” though China accounted for about 20% of Apple’s income in the newest quarter.
“We expect the two-day transfer of Apple shares by -6% signifies that the market believes that the latest headlines from China will grow to be one thing broader,” Woodring wrote on Friday. “We expect that is unlikely… inventory actions are exaggerated.”
Even in a worst-case state of affairs, Morgan Stanley thinks Apple will lose about 4% of income and three% of earnings per share. Inventory motion earlier this week indicated that Apple would lose 70% of iPhone shipments to China, an “extraordinarily excessive and unlikely state of affairs,” based on Morgan Stanley.
Apple shares rose greater than 1% on Friday.
Apple has made positive factors in China over the previous few years.
An evaluation from JPMorgan reveals that Apple doubled its market share from 2019 by the primary quarter of 2023, taking about 20% of the Chinese language market.
And that progress could possibly be in danger, based on JPMorgan analyst Samik Chatterjee.
“We don’t anticipate restrictions on iPhone possession by authorities workers to have a cloth impression on quantity expectations, as earlier restrictions of the same nature confirmed restricted proof of adjusting client shopping for behaviour,” Chatterjee wrote.
“Nevertheless, the restrictions coincide with the latest launch of the Huawei Mate 60 Professional (for instance, Huawei’s 5G smartphone), and the restrictions will make it troublesome for Apple to proceed reaching share positive factors within the home market.”
Chatterjee additionally famous that potential headwinds in China come at a crucial time for Apple.
The inventory hit an all-time excessive over the summer season, sparking a debate about whether or not the shares are overvalued. Then, the tech large defied Wall Road expectations for iPhone gross sales and reported falling income for the third straight quarter in early August.
“We imagine the share value outperformance within the the rest of the 12 months (notably after sturdy first-half outperformance and weak efficiency between July and September) is dependent upon exceeding investor expectations now lowered for the iPhone 15 launch,” Chatterjee wrote.
Apple’s large fall occasion is about to happen subsequent Tuesday, and the iPhone 15 launch is anticipated to be the headliner. Historically, Apple inventory has not carried out nicely within the month following the launch of the iPhone, with September additionally marking the inventory market’s weakest month of the 12 months.
And whereas analysts level out that there aren’t many “bodily” upgrades anticipated for the iPhone 15, Apple can profit from customers upgrading their present iPhone.
JPMorgan estimates that Apple will promote 218 million iPhones from September by the top of the 12 months, about six million fewer than final 12 months’s complete.
“Traditionally, the iPhone launch has been a promoting information occasion,” Woodring of Morgan Stanley wrote.
Whereas we do not anticipate shares to react to the Wonderlust occasion on September 12 to be any completely different this 12 months, we nonetheless imagine that the iPhone outlook for fiscal 24 may be very low and that the iPhone 15 cycle just isn’t as “frequent” as anticipated, with potential for unit progress. and (common promoting value).”
Josh Schafer is a reporter for Yahoo Finance.
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