How iPhone X Weakness Caused A Downgrade Of Sony

Sony Corp (ADR) SNE has been hitched to the Apple Inc. AAPL gravy trail for a while now, but one Wall Street analyst said the ride is coming to an end.

The Analyst

JPMorgan analyst JJ Park downgraded Sony’s Toyko-listed shares from Overweight to Neutral and lowered the price target for the stock from 5,500 yen ($50.43) to 5,400 yen ($49.51).

The Thesis

The iPhone's momentum is starting to slow, a trend JPMorgan thinks is here to stay, Park said in a Wednesday note.

“We now forecast iPhone X build to decline 50 percent Q/Q, a similar magnitude to iPhone 8/8+ in 1Q18, and the weakness will continue in 1H18, as high-end smartphones are clearly hitting a plateau along with higher product prices."

Apple singlehandedly accounts for about half of the global CMOS image sensor market, a high-end market in which Sony currently holds about 70 percent market share, according to JPMorgan.

Sony stock has essentially traded in tandem with Apple over the past two years due to their close relationship, Park said. But while other iPhone suppliers have endured meaningful corrections, Sony has outperformed in the market thanks to the dual-cam device trend. Once that trend starts to slow, Park said, Sony stock will likely no longer outperform.

Given how well the stock has performed, Park says any disappointment on high semiconductor expectations will likely pressure Sony shares.