Apple Faces Slower Consumer Demand in China That May Hurt iPhone Sales, Goldman Sachs Says

9:00 AM, Oct 15, 2018 — Slowing consumer demand in China could affect Apple (AAPL) this fall, but not enough for Goldman Sachs to lower its iPhone shipments estimate, the bank said in a note to clients on Monday.

Macro indicators in the Asian nation have weakened “substantially” as the country’s PMI dropped to a 50.8 print in September from a 51.3 in August, the bank’s analysts said. Auto sales fell 12% year-over-year last month versus a year-over-year decline in August, and Golden Week indications are “lackluster,” Goldman said.

“We also believe that smartphone unit volume deteriorated by 15% year-over-year in the third quarter, which is unheard of in a typically seasonally strong third quarter,” the analysts said. “Though most of the smartphone
weakness was in the mid and lower range, we find it hard to believe that this general environment is going to be helpful to Apple unless things improve late in the year.”

Apple shares were down 0.3% in pre-bell trading on Monday.

It’s not all bad news, however, as iPhone conversion trends are positive in China and elsewhere, the bank said. Apple’s flagship product didn’t even compete in the rapidly growing segment last year, there’s upside potential this year as the Xs Max and CR are in the 6-inch-plus screen-size category, Goldman said.

The bank reiterated its December quarter iPhone shipments estimate of 80 million and retained its $240 12-month price target, though much of that forecast was based on Chinese demand for phones with larger screen sizes.

“Should weak consumer demand persist and impact the higher end of the market, Apple’s potential to beat and raise (fiscal fourth quarter) earnings is likely reduced,” Goldman said.

Companies: Apple Inc.
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