Shares of Apple (AAPL) are under pressure after HSBC analyst Erwan Rambourg downgraded the stock to Hold as he believes growth in the company's core iPhone business is set to "slow dramatically." Meanwhile, iPhone chip supplier Cirrus Logic (CRUS) cut its third quarter revenue view to $300M-$340M from $360M-$400M due to smartphone weakness.
‘DRAMATICALLY’ SLOWING IPHONE BUSINESS: In a research note to investors, HSBC’s Erwan Rambourg downgraded Apple to Hold from Buy and lowered his price target on the shares to $200 from $205. The analyst pointed out that he believes iPhone volume and value growth could now moderate. While the U.S. market should remain solid, emerging markets, foreign exchange rates and diversification are headwinds in the short-term. Rambourg highlighted the “limited upside in terms of penetration” for Apple’s iPhone linked to smartphone market saturation, a longer life cycle, issues of affordability in certain markets and competition developing. The reality for Apple over the next few quarters is one of “limited shipment growth, if any,” he contended. The analyst argued that growth in the company's core iPhone business is set to "slow dramatically," and noted that he also has a "less than enthusiastic view" of Apple's ability to make significant headway in emerging markets like India. Further, he considers that it should become incrementally difficult for Apple to expand average selling prices dramatically over the next few years. It is "too late to sell" Apple shares following the selloff in November, but it is also "too early to buy," Rambourg contends. Nonetheless, he acknowledged that growth in services could be a catalyst for the long-term.
CIRRUS LOGIC CUTS GUIDANCE: Last night, Cirrus Logic lowered its third quarter revenue view to $300M-$340M from $360M-$400M, with consensus at $368.34M. The company also said it sees third quarter GAAP gross margin between 49%-51%. Commenting on the announcement, Oppenheimer analyst Rick Schafer noted that while investors may be surprised by the magnitude of Cirrus Logic's cut, iPhone weakness has been “well established” over the past few weeks as fellow Apple suppliers have reduced estimates. Looking to CY19, the analyst continues to see disappointing iPhone units and a lack of incremental Cirrus Logic content at Apple “hindering growth.” Schafer reiterated a Perform rating on Cirrus Logic's shares. This morning, Craig-Hallum analyst Anthony Stoss lowered his price target for Cirrus Logic to $44 from $47, while MKM Partners analyst Ruben Roy cut his price target on the stock to $45 from $48.
WHAT’S NOTABLE: Earlier this month, several Apple iPhone suppliers cut their near-term forecasts. While Lumentum (LITE) did not call out Apple by name, its mention of a request from one of its "largest Industrial and Consumer customers for laser diodes for 3D sensing" to "materially reduce shipments" is widely believed to be referring to the iPhone maker. Also citing an unnamed customer believed to be Apple, Qorvo (QRVO) lowered its revenue and earnings forecasts for the third quarter of fiscal 2019 due to recent demand changes for "flagship smartphones." Meanwhile, another supplier of Apple, AMS AG, lowered its fourth quarter revenue estimates to $480M-$520M from $570M-$620M, citing recent demand changes from a major consumer customer.
PRICE ACTION: In morning trading, shares of Apple have dropped almost 2% to $181.53, while Cirrus Logic’s shares have slipped about 3% to $37.55.