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Apple's Bummer Summer: China and iPhone Worries Depress Stock

Analysts express concern about slowing iPhone sales.


Apple has shed nearly $100 billion in market value since mid-July amid investor concerns about weakening demand in the China market and its ability to sustain the sales momentum of the iPhone.

Wall Street began to show signs of anxiety when Apple reported its June quarter results. The company beat consensus estimates, but the stock dropped as iPhone sales fell short of some of the loftier projections. China sales didn’t help. Revenue there declined 21 percent from the March quarter, when iPhone sales set records in that increasingly important market. Meanwhile, the company’s refusal to report initial sales of the Apple Watch fueled speculation that the device is less than an overnight sensation.

Since then, two prominent technology analysts, Cowen & Co.’s Timothy Arcuri and Merrill Lynch’s Wamsi Mohan, have downgraded Apple’s stock.

Mohan expressed concerns about a slowdown in the company’s revenue growth, as iPhone sales decelerate. He noted that the company’s latest products, Apple Watch, Apple Pay and Apple Music, are taking time to build momentum.

Apple’s suppliers told Cowen’s Arcuri the number of next-generation iPhones Apple ordered in preparation for a September launch is down about 10 percent, compared with last year’s ramp-up to the introduction of the iPhone 6 and 6 Plus. And many industry observers expect the next iPhone to be an incremental upgrade that might not generate the same level of consumer excitement.

“Our field work continues to suggest that builds are tracking down cycle/cycle for the first time in a new iPhone launch,” Arcuri wrote. “And, while we are very bullish about Apple’s ability to tap into a much broader and deeper demand opportunity for a price-reduced 6/6+ than prior ‘old’ models, this is a different narrative.”

China as a market now accounts for nearly 27 percent of Apple’s sales. A pair of research reports, from Canalys and Counterpoint Research, show that Apple’s iPhone slid from first to third place in the key market, behind domestic smartphone makers Xiaomi and Huawei.

Apple’s China sales surged 112 percent this spring, compared with the same time a year ago. The company is working furiously to increase its presence in the region — opening more Apple stores and expanding its distribution channel.

At the same time, the iPhone is seeing competition for the high-end segment of the market from Huawei, which heavily promoted a giant version of its P8 “phablet” this spring, according to Canalys research analyst Nicole Peng. Huawei’s sales surged 48 percent over the prior quarter.

Daniel Ives, a technology analyst with FBR Capital Markets & Co., said Apple is battling the perception that its best days are behind it, at least in China. But he believes these worries are overstated in a market that he believes will become the largest for Apple.

“Apple is fighting a shadow,” Ives said. “They came out with China numbers that were better than expected. Now, the worries focus on the September quarter.”

Apple’s stock closed at $115.40, up 76 cents in the day’s trading — but well off from its recent high of $132.07 on July 20.

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