Apple buyers shrug off market retreat

iPhone sales keep falling but handsets remain key to a strengthening outlook

Reports that Beijing now doubts that a long-term trade deal can be reached with the U.S. anytime soon have brought the recent risk-seeking drive to a juddering halt. Yet Apple stock has remained aloft all session, returning to near-record levels hit last week. It was also the only gainer in the S&P 500 tech hardware sub-sector half way through Thursday’s U.S. session. In other words, investors are holding Apple, by and large, whilst retreating from most shares.

The $1.1 trillion-dollar group’s much awaited fourth-quarter report was certainly solid, in headline terms, crushing forecasts on the top and bottom line. Apple also paced expected revenues from services, the segment it sees as its chief growth driver. Yet Q4 details left quite a bit to be desired.

-         iPhones also showed a hefty shortfall on a year ago. Sales of $33.36bn were 10% below the same 2018 quarter

-         Critical Greater China region sales fell 2.4% on the year to $11.13bn

-         iPad revenues were ahead of estimates, but Macs missed badly, even accounting for a challenging comparison with Q4 2018

Yet Apple’s iPhone—still its top revenue earner—holds the key to renewed investor confidence. At a simple level, Q4 sales were comfortably above forecasts by about $1bn. Looking deeper, Wall Street is getting in gear with Apple’s dual strategy aimed at juicing a huge iPhone installed base and persuading owners to upgrade more quickly. Signs that this strategy is beginning to work include an overall sales rise and a raised top-line forecast for the key holiday period. The midpoint of new Apple guidance is $87.5bn. The Street’s Q1 view till last night $86.51bn.

Initiatives like an interest free monthly repayment programme over 24 months linked to Apple Card are set to be launched to reduce an upgrade cycle that has grown from about 20 months on average over the last three years to almost two and half years currently, according to UBS. Sales forecasts for new wearable technology products—chiefly, augmented reality glasses—are also compelling. So together with a stellar quarter in services, a more convincing overall top-line outlook is being bought. multiple investment bank upgrades were seen in the wake of Wednesday’s results.

The lack of a discernible base in the decline of iPhone sales should perhaps worry investors more. Continued declines will constrain profit growth. As well, the shares now discount strong a strong 2020 product cycle in a difficult to predict trade outlook, let alone an Apple-specific one. Apple upside risks have improved, but downside drags remain clear and present.

Read an in depth technical chart outlook for Apple by our Chief Technical Strategist for Asia, Kelvin Wong, HERE