Analysts baselessly warning of ‘Peak iPhone’ allow Apple to buy back even more outstanding shares

“On Monday, Katy Huberty of Morgan Stanley cited channel checks and a customer intent survey as the basis for predicting the potential for iPhone sales to fall by as much as 2.9 percent over the next year, reaching a total for 2016 as low as 224 million in a ‘worst case scenario,'” Daniel Eran Dilger writes for AppleInsider. “The idea of “Peak iPhone” generated clickbait headlines, but the real story is that channel checks have historically been extremely worthless at predicting Apple’s actual performance.”

“While Huberty’s report was exaggerated and presented out of context by a number of sites, there are also some key problems in the data itself. As noted by Philip Elmer-DeWitt of Fortune, Morgan Stanley’s data was based on channel check estimates by Jasmine Lu, who covers the Asian supply chain for the bank,” Dilger writes. “Lu’s component orders estimate described a 10 percent cut in orders (of some sort) for the current quarter and a 20 percent cut for the first quarter of 2016. Such channel checks and their interpretations have repeatedly proven to be wrong.”

MacDailyNews Take: Those who are interested in actually analyzing companies vs. ginning up low-year-end action from gullible clients, Katy, are those who listen to what Apple’s management tells them:

Even if a particular data point were factual it would be impossible to accurately interpret the data point as to what it meant for our overall business because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supply performance can vary. The beginning inventory positions can vary, I mean there is just an inordinate long list of things that would make any single data point not a great proxy for what’s going on. Apple CEO Tim Cook, January 23, 2013

“When Huberty asked Cook in the call’s Q&A about the company’s ‘December quarter revenue guidance for only low single digit revenue growth,’ and whether ‘Apple isn’t on the verge of X growth for the first time in a decade,’ Cook offered some real information,” Dilger writes. “‘You have to consider the constant currency growth rates,’ Cook said, referencing the strong US Dollar. ‘And so if you do that, our guidance is actually 8-11 percent, because we have about a 700 basis point FX headwind in Q1. And so, the [guidance for iPhone] growth is actually quite good.’ He added, ‘we believe that iPhone will grow in Q1, and we base that on what we’re seeing from a switcher point of view. We recorded the highest rate on record for Android switchers last quarter at 30 percent. We also look at the number of people that have upgraded, that were in the install base prior to iPhone 6 and 6 Plus, and that number is in the low 30 percentages, so we feel like we have a very open field in front of us.'”

Read more in the full article here.

MacDailyNews Take: These specious analyst notes are put out at year-end to increase brokerage house commissions. Don’t fall for that sort of manipulative garbage.

The calls from the brokers to their clients would be something along the following lines:

• To a client that is already long the broker would say, “our analyst just found out some information not yet out on the Street and he says shares will remain weak for weeks and quarters and you should sell your shares in Apple and buy XYZ instead.”
• To a client that has no position in Apple, the broker would say, “our analyst just made a great call on Apple and the shares are down around $3 per share and I know you have wanted to buy Apple and here is your opportunity. He still has an Outperform on the stock with a $140 price target.”

So, what the analyst did here is come out with a negative note that will get the shares moving, in this case lower (matters not actually) and allow the brokers to call their clients and ask them to buy/add/sell as the case may be.

It’s called an “actionable” research report in the business. — Jay Somaney, Forbes, November 10, 2015

SEE ALSO:
Apple suppliers hit by Morgan Stanley’s iPhone sales forecast – December 15, 2015
Some analysts see Apple iPhone sales seen turning negative in 2016 – December 14, 2015
Cramer: Apple shares may not have momentum but they’re cheap – December 14, 2015
Morgan Stanley slashes Apple price target by 12%; shares fall in pre-market trading – December 14, 2015
Apple stock slides on Credit Suisse claims of iPhone component order cuts, weak iPhone 6s demand – December 2, 2015
UBS analyst’s latest ‘research’ note on Apple is just another ‘actionable’ note and should be totally ignored – November 16, 2015
Apple shares continue to get slammed on commission/bonus related ‘actionable research’ – November 10, 2015
Apple lower after Credit Suisse notes substantial supply-chain cuts – November 10, 2015

15 Comments

  1. The SEC needs to do its job and hammer Morgan Stanley for making false predictions based on rumors. Then Apple Corp needs to sue Morgan Stanley for misrepresentation of the facts. iPhone sales will increase over the next quarter, not fall – as predicted. See India. See China.

  2. No surprises there but shows how ill-informed and reactionary the stock market is.
    Point in question. I invested 17K in Apple around 2006. That stock is now worth 200K.
    Since 2002, I have contributed over 150K in 401K and the assets are now worth 250K. The bulk of the increase is from dividends rather than stock increase.

  3. Interesting note about the Citi analysts being fined $30 million for one of their spurious “supply chain” checks in 2012. The SEC should go fine at least Credit Suisse for their similar rubbish on same subject over recent months!

  4. ok mdn,

    how about adding this to your tool box…. you sort of already do this with your “see also” list,

    but how about also keeping outright scores on hits and misses by various analysts and pundits,….. just like the media should be doing with their own pundits.

    that way we, and anyone else in the world can see who knows their onions and who doesn’t.

    box scores work for major league baseball, the nfl and the nba

  5. Economists learned long ago you cannot ask consumers what their “intent” is, or if they “would or would not buy at any particular price”. Because they often do not know. And they will anticipate perceived expectations of the survey.

    The only way to accurately assess what consumers would buy with various product attributes and at various price levels …is to WATCH WHAT THEY ACTUALLY BUY.

    Looks like Katy Huberty and her team at Morgan Stanley do not know this.

  6. Hmm, adjusting post holiday orders to balance just in time production targets in the next quarter. Who’ve thought Apple would ever do that, or had ever done it before?

    These notes are just ways to churn the stock and turn a quick profit on the backs of guileless shareholders.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.