What Happened
Jefferies analyst Edison Lee downgraded Apple (AAPL) to Underperform, reducing the price target by 13% to $200.75, citing weak iPhone sales and lackluster consumer interest in AI. Loop Capital also downgraded Apple, shifting its rating from Buy to Hold and lowering the price target to $230 from $275. Following the news, Apple shares fell by as much as 3.7% on Tuesday.
Why It’s Important
Apple’s iPhone, which accounted for over half of its $391 billion revenue in 2024, is facing challenges both domestically and in key international markets like China. Analysts anticipate weaker-than-expected earnings for the December quarter and lower-than-forecasted results for the upcoming quarter, potentially disrupting Apple’s growth trajectory.
Key Numbers
- iPhone Revenue: Projected to decline by 0.4% year over year for Q1 2025.
- Total Sales Growth: Estimated at 2.8% year over year, down from Jefferies’ prior forecast of 4.6%.
- China Sales: Declined 8% in 2024 to $66.9 billion, following a 2% drop in 2023.
- Market Share: iPhone’s global market share fell 1% year over year in Q4 2024 to 23%.
Challenges in Key Markets
Apple’s struggles in China are exacerbated by competition from local brands like Huawei and Xiaomi, along with cautious consumer spending due to a slowing economy. iPhone sales in the region reportedly dropped between 15% and 20% year over year in Q4 2024. Additionally, overall smartphone shipments grew 3%, but Apple’s performance lagged behind market growth.
AI and Product Strategy
Apple’s foray into AI with its Apple Intelligence platform has not driven the expected sales supercycle. Rolled out in batches starting October 2024, the platform has struggled to gain traction. This piecemeal launch strategy contrasts with Apple’s usual splashy product announcements, leaving consumers uncertain about its full capabilities. The AI smartphone market, in general, is underperforming despite efforts from Apple and competitors like Google and Microsoft.
Upcoming Product Launches
To address declining sales, Apple plans to release a new iPhone SE, targeting the mid-range smartphone market. The company is also preparing to launch entry-level iPads and new MacBook Airs, which could boost its other segments. These efforts may help offset the anticipated challenges in its flagship iPhone sales.
What’s Next
Apple will report its Q1 earnings on January 30, providing a clearer picture of its financial performance and guidance for 2025. Analysts and investors will be closely watching the results and any updates on its AI initiatives and product pipeline.