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Morgan Stanley Downgrades Apple Citing Weak iPhone Demand in China

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In a recent note to investors, Morgan Stanley analyst Katy Huberty has cut its price target for Apple stock (AAPL) to $200 from $203 over concerns that soft iPhone demand in China could lead to a weak June quarter.

Citing “weak China data” as a primary reason, Huberty said that the June quarter iPhone shipment estimate of 42.9M “could be revised meaningfully lower to account for weak supply” (via Business Insider).

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Huberty continues in her note, “Additionally, China smartphone activation data points to a reversal in Apple share trajectory with losses through March that presents a meaningful headwind in the largest smartphone market”. 

Morgan Stanley has now updated its model to slash its predicted number of iPhone sales by 1 million in the March quarter, which reports on May 1, and by 6 million in the June quarter.

Morgan Stanley’s note is the third in two weeks to highlight a weakness of Apple’s business in China, which is Apple’s second-biggest market after North America. 

“With Hong Kong shrunk and mainland China fairly flat, we no longer see China as a driver of significant iPhone growth,” the UBS analyst Steven Milunovich wrote in a note on Monday. And last week, the KGI Securities analyst Ming-Chi Kuo wrote that Chinese smartphone makers had caught up to Apple’s augmented-reality technology, which the company had heavily invested in, in less than a year.

Huberty and her team however see two primary reasons to still stay relatively bullish on Apple stock i.e. a way for Apple to make more money from its customers by selling them services like apps and Apple Music, and the announcement of a large capital-return program on May 1, as it does every year.

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