Can Apple's Mega Cycle Overcome Chinese Demand Issues?

Apple Inc. AAPL’s share of the Chinese midrange-segment smartphone market plunged from 31 percent to 15 percent in the year following March 2016, a phenomenon Barclays attributes primarily to competitive dynamics, coupled with a stall in demand.

“If this continues, then a megacycle could be harder to achieve this year, which is concerning as AAPL recently has traded 0.5x from peak valuation levels during the iPhone 6 megacycle,” Barclays analyst Mark Moskowitz wrote in a Thursday note.

China’s market was “a major engine” for the last megacycle.

Bumpy Ride Lower?

The regional trend reflects a geographically broader theme in Apple’s midrange business, with the firm conceding share of the global segment even as the overall category expanded.

Considering recent circumstances, Moskowitz expects the iPhone 8 to fall short of performance predictions.

“Our research indicates the magnitude of the upcoming iPhone cycle may not reach expectations of 10-15 percent year-over-year unit growth,” he wrote.

The perspective is justified in part by stagnation in the premium smartphone market, whose global revenue declined 13 percent.

“Our concern is that as innovation in the smartphone market wanes, users may be less willing to pay a meaningful premium for the latest smartphone, especially when ‘must-have’ features are lacking,” Moskowitz wrote.

Overall, Barclays considers Apple’s stock near peak valuation with little room to rise. And, if prospects of a megacycle continue to decline, “this could mean a bumpy ride lower.” The analyst has an Equal-Weight rating and $123 price target on the stock.

Apple closed at $144.29, down 0.6 percent on the day.

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