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Apple Gets Rare Sell Rating, iPhone Sales ‘Unsustainable’

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Thousands of loyal customers wait on long lines stretching many blocks outside the Apple Store | Apple Gets Rare Sell Rating, iPhone Sales ‘Unsustainable’ | Featured

Tech giant Apple received a rare “Sell” rating as an investment analyst saw unsustainable iPhone sales in the coming months.

New Street Research analyst Pierre Ferragu slashed his price target on Apple by 28%, to $90 a share. The investment firm also lowered its rating from “Neutral” to “Sell” given the near-term prospects.

It joined one other firm in issuing a “Sell” rating. No other major investment firm has Apple rated below “Neutral.”    

RELATED: Apple Posted Record Sales of $111.4 Billion

iPhone Sales Unsustainable

Ferragu argued that Apple’s iPhone 12 sales will become unsustainable. Sales came in droves beginning last year due to the increased availability of 5G networks.

Now, iPhone sales can significantly slow down in the second half of 2021. In addition, many buyers saw their earnings remain unaffected during the pandemic.

However, their spending opportunities evaporated as many businesses closed shop, and travel and vacation opportunities evaporated. 

“Most affluent consumers did not see their earnings power much affected by the pandemic, but they saw their spending opportunities shrink.

High-end consumer electronics benefited as a result,” Ferrau said. “The iPhone is the best illustration of this, driving close to record shipments in FY21, implying the iPhone 12 is the second best-ever received iPhone, after the iPhone 6.”

Apple’s Next Line Up Not As Exciting

Also, Ferragu thinks that the next line-up of iPhones will lack the innovation that can excite new customers. As a result, he pegged his shipment forecasts between 180-200 million units, which is 20% below analyst consensus.

“The key question is how things shape up for next year, as the current super-cycle has brought forward demand, the next iPhone line up is likely a “12S” type with limited innovation, and consumers spend less on consumer electronics as the economy re-opens,” he noted. 

Meanwhile, Apple shares moved down 0.4% lower in early trading Friday to $124.77 each. For the year, Apple stock is now 6% lower than its price at the beginning of the year.

CFO Luca Maestri told investors earlier in April that the company will likely experience a “steeper than usual” sequential revenue decline. However, he attributed the projected decline to supply constraints linked to the global semiconductor shortage. 

iPhone Sales Boosted 2020 Revenues

Last year, iPhone revenues rose 65% from last year to $47.94 billion. This is well ahead of the $41.7 billion Street forecast. CEO Tim Cook attributed the sales to “strong demand for the iPhone 12 family” among other factors.

Greater China revenues nearly doubled, rising 88% from last year’s $17.728 billion. Overall services revenues rose 26.6% to $16.9 billion.

Watch CNBC TV’s video report explaining why New Street Research downgraded Apple to sell:

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