Apple shares drop as iPhone's sluggish sales raise red flags

Apple shares drop as iPhone's sluggish sales raise red flags

Apple shares drop as iPhone's sluggish sales raise red flags

Based on Lumentum forecast, analysts have deduced that there is an 18 to 20 million reduction in iPhone orders from Apple.

As Bloomberg's Andrew Cinko noted Wednesday, Apple's correlation with the S&P 500 is double what it was previous year and far larger than what it was in 2013-14 when Apple shares fell about 30%.

While Apple bulls have cheered the firm's swift transition towards its higher-margin, recurring revenue software and services businesses, such as Apple Music and the App Store, the company still generates almost 60% of its top line from its iPhone segment.

Following a poor forecast earlier this month, analysts and investors voiced concern over the state of Apple's business, contributing to growing worries that iPhone sales were stagnating and could hurt suppliers.

Apple has been in a bit of a rough patch lately.

Apple analyst Ming-Chi Kuo says part of the blame for the slow XR sales is competition from Huawei.

In the fourth quarter, Apple sold 46.9 million iPhones, missing analyst expectations of 47.5 million iPhones, according to FactSet.

"We think there is an inventory component that is still negatively affecting the supply chain", UBS said, indicating that Apple may be as many as 10 million units shy of what Wall Street had initially expected. Apple also provided lukewarm guidance for the all-important holiday quarter.

Apple's iPhone XR might not be the hotseller that analysts had predicted with noted analyst Ming-Chi Kuo slashing shipment forecast for the device. In other words, whether or not iPhone XR sales are above or below projections is arguably irrelevant as long as Apple keeps finding ways to boost revenue, which is clearly more important than how any one specific iPhone model is doing in the marketplace.

However, the iPhone XR doesn't seem to be doing too well right now. Apple said it preferred to focus on the company's transition to a services company, with regular recurring revenue.

Citi also cut its target on Qorvo on Monday due to iPhone XR weakness.

"Although Apple has positioned itself as a super-expensive handset maker providing high-end products, its strategy has not been working in emerging markets including China and India as Chinese vendors have been making iPhone-like products", he said.

"This year Apple well and truly is the stock market once again", Cinko writes, "and its price action lately has been stirring up troubling signs about what might be next for equities".

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