“Apple reissued lower guidance for the Dec-18 quarter (8% below Street expectations), citing soft iPhone sales in China as the primary driver of lower-than-expected revenue,” Gene Munster and Will Thompson write for Loup Ventures. “Despite what will be a more complicated 2019 for the company, we believe the fundamentals are unchanged and we continue to expect AAPL to outperform the rest of FAANG this year.”

“China: 2/3 of the issue. Macroeconomic conditions including a slowing Chinese economy, a strong US dollar, and trade tensions that create uncertainty, weighed on iPhone demand in China,” Munster and Thompson write. “Price increase dampens iPhone upgrades: 1/3 of the issue. In Apple’s FY18, the iPhone average selling price rose 23%, and we saw that iPhone demand was not as price-elastic as Apple imagined. The price hike did not take.”

Munster and Thompson write, “The implication of price-inelastic iPhone demand is that the iPhone’s weighted average selling price is more likely to decrease in the Sept-19 quarter than increase.”

Read more in the full article here.

MacDailyNews Note: In a followup post, Munster and Thompson write, “We think there is a larger point that’s being missed: the company will still report a record earnings result. Tim Cook wrote in tonight’s letter, ‘we also expect to report a new all-time record for Apple’s earnings per share.’ There is a somewhat logical disconnect between a company about to report a record earnings quarter and the stock, which is down 34.3% since last reporting.”

“AAPL stock is now at a crossroads. Some investors will consider the stock broken and never reward it with a ‘proper’ multiple, but we’ve followed the company long enough to know there is cyclicality in the market’s relationship with Apple,” Munster and Thompson write. “It will probably take a new product category, large M&A (to restart growth narrative), a more aggressive buyback, or providing greater insights into their business, particularly services, to persuade investors to think differently about Apple’s multiple.”

On the bright side: Investors have plenty of time to scoop up AAPL at prices that would have been nearly impossible to imagine just a few short months ago.

Open thread: Does Apple need new leadership? – January 2, 2019
CEO Tim Cook on why Apple lowered first-quarter revenue forecasts – January 2, 2019
Apple CEO Tim Cook issues public letter to investors, lowers guidance – January 2, 2019