Nomura Instinet says U.S. and China checks indicate demand remains hushed
Noting that many Apple (AAPL) investors are looking ahead to the 2020 5G cycle, Nomura Instinet analyst Jeffrey Kvaal cautioned that consensus fiscal first quarter iPhone estimates "may be optimistic," while the shape of the 5G cycle "remains uncertain." More bullish on Apple, Baird analyst William Power said his semi-annual Apple survey showed that the iPhone market share remains strong, despite muted overall smartphone demand.
NOMURA CAUTIOUS INTO APPLE'S Q1: Nomura Instinet's Kvaal believes many Apple investors are looking ahead to the 2020 5G iPhone launches. However, consensus fiscal first quarter iPhone estimates "may be optimistic" while the shape of the 5G cycle "remains uncertain," Kvaal argued in a research note to investors. The analyst pointed out that soft demand and one-time fiscal fourth quarter tailwinds imply a "below-seasonal" first quarter, as he lowered his fiscal 2020 earnings per share estimate to $12.55 from $12.98, below consensus of $12.99.
Furthermore, Kvaal noted that his U.S. and China checks indicate demand remains hushed and he does not expect this year’s new phones to materially alter this pattern, as the camera seems the largest meaningful improvement. The analyst sees Apple News+, Apple Card, and Arcade ramping, though trial periods should push material revenue impact into 2020. He expects all but the Apple Card to carry low margins, and he is also as yet "uncertain" about demand for 5G phones in 2020, given the reality of higher costs and uncertainty of operator promotions. The analyst reiterated a Hold rating and a $185 price target on the shares.
IPHONE SHARE 'STILL STRONG': Citing his semi-annual U.S. Apple survey focused on iPhone purchase intent, Watch demand trends and services interest, Baird’s Power said that while overall smartphone demand "remains muted," the company's share "remains strong" as it continues to build Watch and services traction. Against the challenging industry backdrop, survey results suggest that Apple could continue to gain share in the U.S., which speaks to the strength of the ecosystem, he contended. Additionally, Power pointed out that device data continues to point to upgraded opportunity, at some point, while Services results look "solid."
While China remains a wildcard and potential risk, results in recent quarters suggest Apple is holding its own, "contrary to some concerns," Power added. The analyst reiterated an Outperform rating and a $240 price target on the shares.
PRICE ACTION: In morning trading, shares of Apple have gained almost 1% to $207.20.