24/7 Wall St.

From a note to clients by analyst Samik Chatterjee that landed on my desktop Wednesday:

We are updating our “Global Handset Model”…

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Weaker-than-expected 4Q18 smartphone demand; 2019E to mark the worst year in smartphone era with >5% unit decline. Following recent announcements from Apple and Samsung, and our supply chain research in China (see here), we are cutting 4Q18 smartphone shipments from -1% y/y to ‑9% y/y. We believe the softer volumes were driven by worsening macro weakness in emerging markets (particularly China, where smartphone units tracked -20% y/y in 4Q) and elongating replacement cycles in developed markets. Given lack of spec upgrades and ongoing macro uncertainties, we lower our forecast and now expect -4.8%/-5.5% y/y decline in global handset/smartphone sales in 2019, following -2.9%/-3.3% y/y decline in 2018.

Stagnant global handset market; recovery in 2020 hinged on 5G replacement. Looking over a two-year time period, our new forecasts imply a ‑2.2% CAGR for global handset shipments between 2018 and 2020. This is based on a moderating replacement rate of 23.2%/21.4%/21.2% vs. 23.6%/22.9%/22.9% previously. We still forecast 2020 to mark a recovery in global smartphone sales, largely driven by wider availability of 5G-enabled smartphones. However, the growth rate may be milder at +0.9% y/y vs. prior estimates at +1.9% /y/y.

Cue the charts:

Click to enlarge.

As of 1/3/19: Overweight rating on Apple with $228 price target. 

My take: Not good for Apple or Samsung. But with customers like me—who ordered a $129 iPhone XS battery case yesterday the minute I heard they were available—it could be worse.