Analyst Rod Hall puts dollar values on the effect of Chinese consumer spending on Apple’s top and bottom lines.
From a note to clients that landed on my desktop Monday morning:
There are multiple signs of rapidly slowing consumer demand in China which we believe could easily affect Apple’s demand there this Fall. In this report we provide some sensitivity analysis around various outcomes of smartphone market growth and Apple’s market share in China to give investors a feel for potential earnings impacts of a weak Chinese economy in late 2018. On the flipside of this we flag the offsetting positive trend of 6”+ phone conversions in both China and elsewhere. Given Apple’s flagship product did not compete in this rapidly growing category last year we believe there is some upside potential this year as both the Xs Max and XR are in the 6”+ screen size category. Overall we are reiterating our Dec qtr iPhone shipments estimate (80m) and retaining our $240 12-month PT but much of Apple’s upside potential in our thinking was centered on Chinese demand for larger screen sizes. Should weak consumer demand persist and impact the higher end of the market Apple’s potential to beat and raise in FQ4’18 earnings is likely reduced.
Maintains Neutral rating and $240 price target.
Below: Hall’s spreadsheets (click to enlarge).
My take: The spreadsheets may be a little hard to read, but at least Hall is trying. Most analysts just wave their arms.