Apple’s iPhone Shipments, ASPs Expected to Take Big Hits in Fresh Note

FILE - In this Oct. 16, 2014 file photo, a screen at a trading post on the floor of the New York Stock Exchange is juxtaposed with the Goldman Sachs booth. (AP Photo/Richard Drew, File)

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Earlier this week Cupertino tech giant Apple Inc (NASDAQ:AAPL) introduced a new iPhone intended towards targetting budget-conscious users. This device succeeds the original iPhone SE that Apple launched in 2016, and came at a time when the company has been regularly refreshing older products to diversify its portfolio and add new revenue streams.

However, following a near-complete shutdown of retail and manufacturing in China following the coronavirus outbreak and with lockdowns now in full swing in Europe and North America, Apple's short-term future is still far from certain. With this in mind, investment bank Goldman Sachs is out with a fresh investor note that downgrades Apple from Neutral to Sell and cuts the bank's price target for the company by $17/share.

Apple Downgraded by Goldman Sachs on Back of Reduced iPhone Demand & Slow Recovery From Coronavirus Shock

The analyst note available with SeekingAlpha and The Fly is very pessimistic about Apple's future. Previous reports have suggested that there has been talk inside Apple's boardrooms discussing the possibility of delaying the company's upcoming iPhone launch. Apple has been widely reported to launch new smartphones with 5G internet connectivity in Fall, as it hoped to gain strong footing before the next-generation technology became widely available in its home country.

Through the 5G iPhone, Apple also hoped to break into China's market for the devices - with many fearing that the launch might have come a bit late given that the East Asian county was one of the first in the world to roll out 5G to its population last year.

In Goldman's note, analyst Rod Hall has reduced Apple's target share price to $233/share from the bank's earlier target of $250/share. Analyst Hall believes that Apple will witness a steep reduction in unit demand for the iPhones throughout mid-2020, with the demand not recovering fully by the time the company's second fiscal quarter of 2022 has commenced. He also believes that due to the coronavirus, Apple's customers will shift their purchasing decisions towards less pricey iPhones, and in effect, reduce the product's average selling price.

Rear view of the iPhone SE launched earlier this week. The device runs on Apple's latest smartphone system-on-chip the A13 Bionic.

Bank Believes iPhone Unit Sales Will Drop in First Half of 2020 and Recover Partially Next Year

Additionally, Goldman Sachs also believes that the impressive growth in services that Apple has exhibited recently will not maintain momentum in 2021, with services' revenue percentage dropping. Whether the bank's rationale behind this drop involves hurt purchasing powers post-coronavirus or whether it involves a reduction in Apple's services portfolio is uncertain - but we believe that the former reason should play a larger role here.

In the second quarter of the calendar year 2020, Hall believes that iPhones units shipped will drop by more than one third (36%). He further believes that for the first half of the calendar year 2020, Apple's iPhone unit shipments will have dropped by 24% year-over-year as the coronavirus paralyzes supply chains and reduces foot-traffic to the company's retail locations.

Goldman's note comes following a disturbing letter from Broadcom Inc's (NASDAQ:AVGO) vice president of sales Mr. Nilesh Mistry to customers. The letter, sourced from Bloomberg, highlights Mr. Mistry's sobering warning to Broadcom's customers about an increase in lead times for product delivery. The executive has advised customers to place orders with Broadcom at least five months (26 weeks) in advance if they want to ensure timely delivery.

Broadcom's operations have been affected due to lockdowns in Thailand, Malaysia, Singapore and the Philippines, reads the letter, and transporting components all around the world has become expensive and tricky following the coronavirus states the executive. Broadcom manufactures critical components for Apple's iPhone, and the effect of this warning on the upcoming models' launch and availability might prove hazardous. In another report of the analyst note from Reuters, the analysts worry precisely about this, stating that they do not believe that the 5G flagship iPhone will be launched before November.

One hour before the stock market opens, shares of Apple Inc are up by 60 cents over yesterday's close. The company has recovered most of its value lost on the market since the coronavirus crash, but with concerns about its short term future still looming, the stock has nevertheless faced resistance during daily trading.

Updated on 13:10 ET with Reuters' report.

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