The shares of Apple Inc (Nasdaq: AAPL) recorded a price decline yesterday after Wamsi Mohan, an analyst at the Bank of America, hit the tech behemoth with a downgrade, highlighting concerns over sluggish consumer demand. Notably, the company has also terminated its plan to increase iPhone 14 production in 2022 due to weak demand. The stock of Apple lost 4.91%, or $7.36, to close at $142.48.
According to Wamsi Mohan, the robust performance of the stock is threatened yet again. In his note to clients, the analyst has pointed out that Apple shares have performed exceptionally on a year-to-date basis, as they have always been perceived as a safe haven investment.
The analyst note reads as follows: “We see a threat to the firm’s earnings growth in 2023, as we anticipate materially negative outlook amendments prompted by a decline in market demands.”
Mohan’s note further points out that the iPhone 14 cycle could turn out to be weaker than expected as negative effects on consumer spending remain high and “lead time data” has started decreasing, also for “Pro models.”
The analyst also feels that there are short-term worries about its services business, with a rising threat of a slowdown. Notably, licensing and App Store revenues account for 60% of Apple’s revenues.
Some other concerns cited by the analyst include the possibility that a shift in the product mix in favor of the iPhone 14 Pro will be unable to negate a drop in the top and bottom lines if sales of iPhone units record a decrease, a return to iPad and Mac sales levels prior to the outbreak of Covid-19, and the negative impact of a robust US dollar.
The Bank of America (BofA) analyst also downwardly amended FY 2023 expectations to $5.87 per share in earnings and $379 billion in revenues. The latest analyst forecast is below the market’s expectations of $6.46 per share in earnings and $412 billion in revenues.
Furthermore, Mohan now expects iPhone sales numbers of 219 million units, considerably lower than Wall Street estimates of 245 million units.
The analyst also expects iPad revenues to be about $22 billion, lower than the $31 billion forecast by Wall Street analysts. Services revenue is also anticipated to be $85 billion, instead of $88 billion.
Based on the aforesaid concerns, Mohan lowered the rating of Cupertino, California-based Apple to “neutral” from “buy” and also slashed the price target to $160 from its prior level of $185.
The analyst concluded by stating that the company’s long-term prospects continue to remain positive.
Interestingly, the company has also terminated its plan to boost production of the iPhone 14 series this year as the demand remains sluggish. The company has started accepting bookings for iPhone 14, which was introduced earlier this month. The four models of iPhone 14 that are being offered are the iPhone 14, iPhone 14 Plus, iPhone 14 Pro, and iPhone 14 Pro Max.
Apple now intends to manufacture only 90 million handsets, roughly the same as last year. Interestingly, the demand for iPhone 14 Pro models is higher than that for entry-level versions (the iPhone 14 and iPhone 14 Plus). The company has also stated that the iPhone 14 series will be manufactured in India rather than China.
The rating downgrade and termination of prior production targets are expected to keep the stock price of Apple range-bound with a slight bearish bias in the short term.
Technically, the stock of Apple is declining after failing to break the resistance at 180. The next support is anticipated only in the vicinity of 130. Additionally, the stock is trading below its 50-day moving average while the MACD indicator is showing a negative reading.
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