Apple Might Be Seeing Sales Headwinds In China For Its iPhone 11

Dec 12, 2019
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Cupertino tech giant Apple (NASDAQ:AAPL) is hoping to utilize iPhone 11 sales and Services revenue to reverse a revenue drop that it experienced in its latest fiscal year. Apple's net sales dropped by $6 billion in its previous fiscal years, as growth slows around the iPhone lineup following the smartphone, as a product, reaching maturity. Apple's stock has nevertheless rallied this year, as it continues to gain momentum over the past eleven months. The growth is fuelled by share buybacks and optimism around both Services and Wearables.

Credit Suisse Reports Apple's iPhone 11 Is Facing Problems In China With Data Suggesting Shipments Dropped By 35.4% YoY In November

However, amidst rising price targets and optimism, it's still clear that Apple has still missed the early 5G wave in China. The country's three primary carriers introduced national 5G coverage last month, and so far, it's estimated that 5.78 million 5G smartphones have been sold in the country in the past four months. Now, a report from analyst Mathew Cabral of Credit Suisse is eager to burst the bubble of optimism that has built itself around Apple's fortunes.

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The big take away from Credit Suisse's note sent out to investors today is that the bank believes Apple's iPhone shipment drops in China can impact up to one-fifth of its revenues from the country. That's a big claim, and Cabral uses data of iPhone shipments in China for the months of November to back his statements. As per data analyzed by Credit Suisse, iPhone shipments declined by 10.3% year-over-year in October, and this drop accelerated to 35.4% in November.

As a result, the bank's investor note suggests that since Apple launched the iPhone 11 lineup this year, shipments in China of the smartphone have dropped by 7.4% in the three months between September and December. This decline is based on local factors such as competition from Chinese companies. Credit Suisse continues to maintain a $221/share price target for Apple (NASDAQ:AAPL).

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Credit Suisse's report follows one from UBS yesterday that cited similar problems that the iPhone 11 is facing in China. Data from China's Academy of Information and Communications Technology had shown growth for the iPhone in one of the world's biggest markets for the months of September and October, with 10 million iPhones being reportedly shipped in the country. However, now it looks like the early-adopters are done with their purchases, and with the Chinese holiday season not due until January, Apple might not see more love from the country this quarter.

In North America and Europe, Apple (NASDAQ:AAPL) is expected to see good iPhone 11 shipments, as carrier checks and component orders for the smartphone have suggested that the company is facing no troubles in maintaining historical sale levels. Stronger iPhone sales will ensure that American companies, including Broadcom (NASDAQ:AVGO), Cirrus Logic (NASDAQ:CRUS), Skyworks (NASDAQ:SWKS), Qorvo (NASDAQ:QRVO) and others benefit from strong revenues. However, if the market does not favor the two iPhone 11 Pro variants then others, such as Power Integrations, will see weak net sales.

All-in-all, we've got approximately a month and a half left before Apple (NASDAQ:AAPL) releases results for its first quarter of 2020. Then, we'll be able to determine just how well the company's decision to play around with LCD on the iPhone has panned. Until then, stay tuned and let us know what you think in the comments section below. We'll keep you updated on the latest.

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