KeyBanc Guarded On An iPhone Demand Recovery: 3 Reasons Why

Firsthand checks with Apple Inc. AAPL suppliers point to a stabilization in demand for the smartphone, but also give "little optimism" around a recovery in the near-term, according to KeyBanc Capital Markets. 

The Analyst

Andy Hargreaves maintained a Sector Weight rating on Apple.

The Thesis

Firsthand checks within Apple's supply chain suggest orders for new iPhone components will be down by at least 10 million units in the back half of 2019 versus the comparable period in 2018, Hargreaves said in a Monday note. (See his track record here.) 

This suggests the potential for a stable outlook, but also implies ongoing weakness through the fiscal 2020 cycle, the analyst said. 

Apple's core Services business will likely see ongoing deceleration on top of regulatory risk related to potential changes in how the App Store shares its revenue, Hargreaves said. It is "unlikely" Apple will post upside to new services in video, gaming, news and credit due to a lack of any competitive advantage over rival services, he said. 

Due to the absence of any catalysts that point to a recovery in Apple's business, KeyBanc lowered its fiscal 2020 EPS estimate from $12.85 to $12.61. The 2020 revenue estimate was also lowered from $268 billion to $263 billion, partly due to the firm dropping its iPhone average selling price estimate from $738 to $731.

Price Action

Apple shares were up 2.66% at $199.06 at the time of publication Tuesday. 

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Photo courtesy of Apple.