Apple Stock Price Falls 4% After iPhone Demand Falters
29 September 2022 - 7:23PM
Finscreener.org
Shares of tech giant
Apple Inc. (NASDAQ: AAPL)
are trading 4% lower in early market today after it disclosed plans
to slow production plans for its latest lineup of iPhones due to
slower demand.
Apple informed suppliers to pull
back efforts to increase the assembly of its iPhone 14 product line
by six million units in the second half of 2022. Apple will now
produce 90 million handsets in this period which is similar to the
year-ago period.
According to experts, demand for
higher-priced iPhones is stronger than for entry-level versions.
So, Apple might shift production capacity from lower-priced devices
to premium models. Given the pullback, Apple stock is now down
19.5% year-to-date, while the tech-heavy
Nasdaq Composite index
has declined by 31.5% in
2022.
Apple is wrestling with a weak macro
environment
Analysts at investment banks such
as Morgan Stanley (NYSE: MS) did not
lower volume forecasts despite this news. However, Bloomberg
Intelligence analyst Anurag Rana expects weak demand from Europe
and China could negatively impact iPhone sales in the next 12
months.
Prior to the launch of the iPhone
14, Apple hiked sales projections and expected shipments to rise by
7% year over year.
There are several headwinds
impacting the largest tech stock in the world. China, the largest
smartphone market globally, is in the midst of an economic slump.
In fact, iPhone 14 device sales in the first three weeks of
availability slumped 11% compared to the year-ago period, according
to a note from Jeffries.
A strong U.S. dollar and red hot
inflation rates are also expected to lower consumer spending in
major markets. Add in interest rate hikes and fears of a recession,
and we can see why Apple stock is close to bear market territory in
2022. A report from IDC also expects global smartphone sales to
fall 6.5% to 1.27 billion units.
The report states, “The supply
constraints pulling down on the market since last year have eased
and the industry has shifted to a demand-constrained market. High
inventory in channels and low demand with no signs of immediate
recovery has OEMs panicking and cutting their orders drastically
for 2022.”
What next for AAPL stock price and
investors?
While the iPhone accounts for
more than 50% of the total revenue for Apple, the company continues
to diversify its revenue base. The upcoming holiday season will be
a key driver of AAPL stock price in the near term.
Deloitte forecasts holiday sales
to rise by 5% year over year, while e-commerce sales are projected
to rise at least 12.8% in the last quarter of 2022.
Consumer spending gains pace
during this period and might boost Apple’s sales in the next 12
months.
Further, Apple’s Services now
account for almost a quarter of sales and is the company’s
fastest-growing segment. Apple’s Services sales accounted for less
than 16% of sales in Q4 of fiscal 2021 (ended in
September).
The Services business includes
several subscription verticals such as Apple Music, Apple Care,
Apple TV+, and Apple Arcade. A subscription business enables
companies to generate steady cash flows across business
cycles.
Analysts tracking AAPL stock
expect sales to rise from $366 billion in fiscal 2021 to $412
billion in fiscal 2023. Its adjusted earnings might expand from
$5.61 per share to $6.46 per share in this period.
So, AAPL stock is priced at 22.6x
forward earnings, which is quite reasonable. ItU+02019s also
trading at a discount of 25% compared to consensus price target
estimates.
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