Apple slips as Morgan Stanley cuts iPhone estimates again
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Apple (NASDAQ:AAPL) shares slipped nearly 1.5% in premarket trading on Wednesday as Morgan Stanley lowered its iPhone estimates for the second time in less than a month due to a slower ramp up in production in Foxconn's Zhengzhou plant.
Analyst Erik Woodring, who has an overweight rating and $175-a-share price target, now sees Apple (AAPL) shipping 75.5M iPhones in the fourth quarter of this year, down from a prior estimate of 78.5M shipments. Woodring also kept his iPhone shipment estimate for the next quarter at 56.5M unchanged, and implied that none of the shortfall in the current quarter would have an effect on Apple's (AAPL) future shipment.
"While we might be taking an overly conservative approach given our Greater China Hardware team," Woodring said. "We also believe more thoroughly de-risking estimates today is the prudent decision considering the uncertainty of the production situation in China," Woodring wrote in a note to clients.
Woodring noted that Foxconn, also known as Hon Hai Precision (OTCPK:HNHPF), is between three and four weeks behind schedule for iPhone production at the Zhengzhou, China plant as a result of the country's COVID-19 lockdowns and worker unrest.
Woodring now expects Apple (AAPL) to generate earnings of $1.88 a share on $120.3B in revenue in the current quarter, but he also lowered his gross margin forecast to 42.5%, which is at the low end of Apple's (AAPL) own guidance.
A consensus of analysts expect Apple (AAPL) to earn $2.02 a share on $124.56B in sales.
In early November, Apple (AAPL) warned that supply chain issues in China resulting from the country's strict COVID-19 policies would result in lower iPhone 14 Pro and Pro Max shipments than previously estimated.
Looking ahead, Woodring conceded that "it's more likely" that most of the demand that did not go filled in the December quarter is pushed out later in the fiscal year, but given the problems in China, as well as the global economic slowdown, it's not 100% clear what demand trends are.
Woodring said that with iPhone 14 Pro and Pro Max lead times being elevated at more than three weeks, "We believe demand for the iPhone 14 Pro [and] Pro Max remains solid" and supports a view that "lost demand in December is more likely to be deferred into March than destroyed."
Woodring added the the iPhone 14 models are 10 to 15 days ahead of the "supply-constrained iPhone 12 Pro and 13 Pro [and] Pro Max at this point in the cycle.
On Tuesday, investment firm UBS said it had seen evidence of improving wait times for the iPhone 14 Pro and iPhone 14 Pro Max in 30 countries, suggesting that the supply chain headwinds Apple (AAPL) has dealt with are starting to ease up.