Apple's iPhone Share in China Shows Positive Momentum, India Emerges as Rapidly Growing Market: Analyst Says Ahead Of Q3

Piper Sandler analyst Harsh Kumar maintained Apple Inc AAPL with an Overweight and raised the price target from $180 to $220.

Overall, Kumar feels Apple can execute its key segments and markets for the June quarter. More importantly, he estimates that Apple will deliver September assumptions that will match or slightly exceed street expectations primarily driven by strength in India for iPhone sales offset by general macro weakness in China. 

For June, the analyst expects Apple to slightly miss street EPS expectations of $1.19 by between $0.02 to $0.04 and deliver revenue marginally lower than the street's $81.7 billion for the quarter. 

Kumar expects dynamics around potential soft conditions in China to reflect in the September quarter guide. The Indian market, on the other hand, offers upside and potentially offsets any headwinds from China. 

The analyst writes that Apple's iPhone sales in China will meet internal expectations. Still, he is concerned about other products from Apple, such as watches, AirPods, and Macs, about their sales within China, given the weak macroeconomic outlook for both June and September. 

Over the last three quarters, he believes iPhone share within China has shown positive momentum. Just in 1Q23, for example, while the Chinese handset market declined by ~5%, Apple's share grew roughly 6%. In other words, the concerns about China's slow-down for iPhone might be relatively, if not wholly, overblown. 

Kumar estimates that Apple gets roughly 10% of its sales from phones in China. Assuming the Chinese market declines in the mid-single digits and Apple keeps up with that pace (worst case scenario), the impact will only amount to 0.5% of Apple's iPhone sales within the quarter. 

By comparison, India is serving as a rapidly emerging market for Apple following the momentum from the first two brick-and-mortar stores recently opened in the country. Per counterpoint, India is likely to account for roughly 4% of iPhone sales for Apple within the upcoming June 2023 quarter, with reportedly a 50% Y/Y jump. 

Apple will likely reach a goal of 5% share within India this year, up from roughly 2% last year, as the iPhone becomes the dominant handset in the high-end segment of the market. 

Overall, Apple is holding up much better in the Chinese end market and might be able to offset meaningful declines, if any. While India is likely to contribute positively and more than offset any declines that Apple might see in the Chinese market. 

The higher price target and multiple reflects his increased optimism for AAPL's execution in the back half of the year. 

Price Action: AAPL shares traded higher by 0.22% at $196.23 on the last check Monday.