'Apple's darkest day in the iPhone era': Here's what Wall Street is saying about Apple's bombshell profit warning
- In its first profit warning in more than a decade on Wednesday, Apple said its revenue will be up to $9 billion lower than originally anticipated in the first quarter of its 2019 financial year.
- Wall Street analysts responded by almost universally reducing price targets.
- Some said Apple's issues were worse than feared, while others said it exposes serious structural issues at the company.
Apple gave Wall Street a nasty surprise on Wednesday when it issued its first profit warning in more than a decade.
Apple had previously told investors to expect revenue between $89 billion and $93 billion in its first quarter. On Wednesday, it revised that estimate down to $84 billion, 7.6% lower than it had expected.
It listed a whole bunch of reasons for the slowdown, including economic weakness in emerging markets, especially in China, where things have been exacerbated by trade tensions with the US.
Weaker than expected iPhone upgrades, a strong US dollar, and an iPhone battery replacement program were among the other issues noted. You can read the full shopping list of Apple problems here.
Analysts responded by near-universally reducing price targets. Some said Apple's issues were worse than feared, while others said it exposed serious structural issues at the company.
The company's stock price is currently down 8.5% in pre-market trading.
Here's what Wall Street is saying about Apple's profit warning:
Analyst Daniel Ives did not mince his words, calling the profit warning "Apple's darkest day in the iPhone era."
"The magnitude of the top-line miss (~8%) with China demand the culprit was jaw dropping in our opinion and will heavily weigh on shares," he said.
Ives added that it is not yet time to "declare the iPhone growth story is dead in the water," however. "Going forward this is an installed base story of 750 million active iPhones worldwide with 350 million of those in the current window of an upgrade opportunity over the next 12 to 18 months," he said.
Price target: $200 (lowered from $275)
On the back of Apple's update, Goldman Sachs reduced its 2019 financial year revenue projection by 6% to $253 billion. It said Apple is more sensitive to macroeconomic changes than most firms.
"We don't see strong evidence of a consumer slowdown heading into 2019 but we just flag to investors that we believe Apple's replacement rates are likely much more sensitive to the macro now that the company is approaching maximum market penetration for the iPhone," Goldman explained.
Price target: $140 (lowered from $182)
Longbow had this damning take on the theory that Apple's services and new product revenue can stave off iPhone issues:
"The magnitude of the China-led sales shortfall is a clear wakeup that the bull thesis of growth in new products and high-margin services and expanded capital return does not currently carry enough weight to mitigate a substantial decline in iPhone demand."
"How low can Apple go?" was the question Citi asked. It added that the impact of trade tensions between the US and China was worse than feared.
"While we have been very vocal about the negative impact from the trade tensions resulting in a negative impact to demand for Apple's products in China with our iPhone and sales estimates below consensus as detailed in our December 10th report Global Tech Views: How Low Can Apple Go?: Trade Wars are Bad for Tech Stocks, we were surprised about the magnitude of the miss and the negative impact of China demand for iPhones," Citi analysts said.
Price target: $170 (lowered from $200)
BMO Capital Markets
It was much the same message from BMO. "We have been cautious surrounding the newly launched iPhone's ability to drive an upgrade cycle, particularly in China, and December quarter results are worse than we would have expected," it said.
Price target: $153 (lowered from $213)
Bank of America Merrill Lynch
Bank of America Merrill Lynch said things could yet get worse for Apple. "Although the trade tensions with China could ease in 1H19, the broader demand weakness and slower upgrade cycles are likely to push units much lower in F19 (we now model 181mn units down from 210mn previously)," it added.
Price target: $195 (lowered from $220)
Analysts at Nomura said the iPhone miss was "severe" and suggested the weakness "was primarily in the new XS/XR models." It added that Apple's issues are "partly structural, partly cyclical," but there are "bright spots" in services and wearable tech, such as Apple Watch.
Price target: $175 (lowered from $185)
"It goes without saying that Apple's negative results have far-reaching derivative implications," analysts said, highlighting firms including Intel and Broadcom as potential collateral.
Price target: $160 (lowered from $210)
"China is following in the footsteps of the US market with lengthening smartphone replacement cycles slowing overall market growth," Morgan Stanley said of Apple's China issues.
Price target: $211 (lowered from $236)