The iPhone 6S was supposed to be a boon to Apple Inc (AAPL) stock. But it has turned out to be a rather unremarkable catalyst for shares.
In the last three months, AAPL stock is down 1.5%, slightly more than the S&P’s 1.3% decline. Technically speaking, all of Apple’s decline and more came today, on the heels of a negative analyst report.
AAPL stock was trading about 2.5% lower at the time this article was written.
Although Apple can be prone to unnecessary investor fears, the issues raised in today’s note are potentially serious, so investors should be conscious of them before making a buy or sell decision on AAPL stock.
Supply Chain Signaling Weaker Demand
The iPhone is still far and away the largest driver of revenue for Apple stock, accounting for 63% of all sales in the most recent quarter. Naturally, that makes iPhone demand awfully important for investors to understand and predict.
Credit Suisse (and every other Wall Street research firm worth their salt) is doing just that by turning their focus to the AAPL supply chain, where they spotted some problems. Credit Suisse’s Kulbinder Garcha said that Apple’s component orders from China have been reduced by 10%, indicating lower-than-expected demand for the iPhone 6S.
Garcha “lowered his estimate on how many iPhones Apple will build in the next calendar year to 222 million from 242 million, and reduced his calendar-year 2016 earnings per share estimates by 6%,” according to MarketWatch.
AAPL isn’t just looking to source from Asia, it’s looking to sell there, too. And with revenue in Greater China soaring 99% year-over-year last quarter, that geographic region is now Apple’s second-largest operating segment.
Still, some were actually disappointed with the iPhone 6S sales numbers, seeing as Apple included China’s sales in the figures this year and did not last year. That gave the distinct appearance that AAPL was (legally) juicing the figures by changing the methodology behind its measurements.
Moreover, demand for the iPhone 6S could easily get snuffed out by much-lower-cost competitors like Xiaomi and Huawei, both of which currently have a larger market share than AAPL in China. Xiaomi alone expects to sell 2 million iPhones to consumers on Singles’ Day alone.
To the uninitiated, Singles’ Day is Nov. 11, and it’s like the Chinese version of Black Friday, only much, much larger. Last year Alibaba (BABA) sold more than $9 billion in goods in 24 hours, more than Black Friday and Cyber Monday combined.
We’ll have to wait to see what impact rising competition and lower supply chain demand means for AAPL, but I wouldn’t be surprised to see it reflected in the Apple stock price going forward.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
