Technology
Tuesday, January 2nd, 2024 4:06 pm EDT
Key Points
- Apple’s Stock Decline: Apple’s shares experienced a decline of more than 3% in Tuesday morning trading following a downgrade by Barclays. The stock was downgraded to underweight, and the price target was slightly adjusted from $161 to $160.
- Concerns Over iPhone Sales and Hardware Growth: Barclays analyst Tim Long expressed concerns about the “lackluster” sales of the iPhone 15, particularly in China. Long predicts that this trend of weak sales will extend to the iPhone 16 and impact Apple’s hardware sales more broadly. Weakness in iPhone volumes, product mix, and a lack of recovery in Macs, iPads, and wearables contribute to these concerns. Analysts had previously noted specific challenges in China iPhone sales as early as October.
- Anticipation of Decelerated Growth in Services Business: Long anticipates a slowdown in the growth of Apple’s lucrative services business, partly due to regulatory scrutiny. The gross margin in Apple’s services business is approximately double the margin on its hardware products. Despite Apple CEO Tim Cook highlighting “better-than-expected” growth in the services unit on an earlier investor call, Barclays remains skeptical about the reliability of this growth in the long term. Regulatory scrutiny, including investigations into the app store, is expected to contribute to the deceleration. Barclays particularly notes the upcoming 2024 determination on the Google Traffic Acquisition Cost (TAC) and the potential intensification of app store investigations as factors that could impact Apple’s future performance. Google CEO Sundar Pichai had previously confirmed that Google pays 36% of its Safari search revenue to Apple, and regulators have been examining both Apple and Google regarding their default search status.
Apple’s shares faced a more than 3% decline in Tuesday morning trading as Barclays downgraded the stock to underweight, slightly adjusting its price target from $161 to $160. Analyst Tim Long expressed concern over the iPhone 15’s lackluster sales, particularly in China, foreseeing a continuation of weak iPhone 16 sales and an overall decline in Apple’s hardware sales. The weakness in iPhone volumes, mix, and the absence of a rebound in Macs, iPads, and wearables contribute to this apprehension, with specific challenges noted in China’s iPhone sales as far back as October. Despite previous reports of the Chinese government allegedly discouraging state employees from using iPhones, denied by Chinese authorities, Apple faces a potential slowdown in its lucrative services business growth due to both regulatory scrutiny and anticipated challenges in the app store investigations. While Apple CEO Tim Cook previously highlighted “better-than-expected” growth in the services unit, Barclays remains skeptical about its reliability in the long term. The analyst, Tim Long, points to the upcoming 2024 determination on Google’s Traffic Acquisition Cost (TAC) and the potential intensification of app store investigations as factors contributing to the uncertainty. The scrutiny involves the payments Google makes to Apple to maintain its default search status, with Google CEO Sundar Pichai confirming a 36% share of Safari search revenue goes to Apple. Regulatory examinations of Apple and Google concerning default search status are expected to impact the dynamics of the tech industry.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/01/02/apple-stock-slips-more-than-2percent-after-barclays-downgrade.html
