Apple shares edged lower in early Friday trading, eating in to their modestly one month advance, following a notable rating change from a top Wall Street analyst and another round of weak iPhone 16 sales data from China.
Apple (AAPL) , which unveiled its delayed AI strategy earlier this year, is using the newly-launched smartphone as the conduit for its broader ambitions with the nascent technology with the aim of rolling it out across its base of 1.4 billion global users over the coming years.
Early readings on iPhone 16 demand, however, have been mixed at best and negative at worst, and consumers are said to be balking at the higher-end versions while showing an inclination to wait for the actual launch of new AI features before purchasing a new handset or upgrading from an existing one.
Apple is reportedly set to unveil its first Apple Intelligence features later this month, with the launch of its new iOS 18.1 operating system on October 28, allowing for the first access to iPhone 16, iPhone 15 and iPhone 15 Pro users who update their software.
Apple is also struggling in one of its most important markets, and the world's biggest in terms of smartphone sales, according to data published earlier Friday by research group IDC.
China sales slide
IDC said Apple's China sales over the three months ending in October fell by 0.3% from the same period last year, compared to a 42% surge for sales from the government-backed tech giant Huawei.
Apple improved its place as China's second-largest vendor, just ahead of Huawei but behind low-cost rival Vivo, but the overall sales decline in an improving smartphone market, will be a concern for investors heading into the holiday season in western economies.
$AAPL Q3 CHINA SMARTPHONE SALES DIP AS HUAWEI SURGES: IDC
— Wall St Engine (@wallstengine) October 25, 2024
Apple’s iPhone sales in China slipped 0.3% in Q3'24, while Huawei posted a 42% surge, driven by the success of its Mate 60 and tri-foldable phone launches, according to IDC.
Apple secured 15.6% market share (down 0.5pp… pic.twitter.com/IyMTuPAu01
KeyBanc Capital Markets analyst Brandon Nispel, in fact, noted what he feels is an overly optimistic investor consensus for Apple heading into the final months of the year and beyond as he published a key note on the group early Friday.
Nispel lowered his rating on Apple to 'underweight', from a previous rating of 'sector weight' and established a $200 price target on the world's most-valuable company.
"Consensus expects Apple 2025 revenue growth to accelerate higher and to grow across all product categories and geographies," Nispel and his team wrote. "As we look at historical data, these appear to be aggressive assumptions.
Related: Analyst unveils Apple stock rating as iPhone 16 demand issue lingers
KeyBanc noted that Apple has only grown revenues across all product categories twice in the past two decades, with growth around all of its five global regions in just three of the last twenty years.
"While it is certainly possible Apple can achieve this feat, it is not probable, in our view," Nispel said.
iPhone SE v iPhone 16
The bank also cited survey data suggesting a higher-than-expected rate of demand for the lower-priced iPhone SE 4, which is expected to launch early next year at a $400 discount to the iPhone 16
"We think this shows the iPhone SE is not incremental, and could possibly be cannibalistic to iPhone 16 sales," Nispel wrote. "From our view, if iPhone SE is successful, iPhone Units could rise but [average selling prices] could fall, contrary to consensus."
Related: Analysts question iPhone 16 demand pace as Apple stock extends slide
Nispel also noted that recent third quarter updates from U.S. wireless carriers, including Verizon (VZ) , AT&T (T) and T-Mobile (TMUS) , showed a 9% year-on-year decline in upgrade rates, which bode poorly for Apple sales in the world's biggest economy.
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"We continue to believe upgrade rates will be down [mid-single digits] in 4Q and [low-single digits} in the first half of next year," the bank said. "From our perspective, given Apple Intelligence is initially rolling out in English and only in the U.S., other markets are likely to be even further behind the U.S"
Apple is scheduled to report its fiscal fourth profits next Wednesday, with estimates suggesting earnings of around $1.55 a share on revenues of around $94.4 billion.
Apple shares were marked 0.95% lower in premarket trading to indicate an opening bell price of $228.38 each.
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