Don't expect Apple's iPhone sales to get better anytime soon, says analyst (AAPL)

Apple Inc. CEO Tim Cook attends China Development Forum (CDF) 2018 at Diaoyutai State Guesthouse on March 25, 2018 in Beijing, China.

Apple's struggles selling iPhones likely didn't end with last quarter, UBS analyst Timothy Arcuri said.
Instead, the company will likely continue to see depressed smartphone sales for the rest of this fiscal year and on into fiscal 2020, Arcuri said.
A major update to the iPhone line in fall 2020 could lead to a rebound, but that prospect is uncertain, he said.
Notably, Arcuri's predictions clash with those of well-known Apple analyst Ming-Chi Kuo, who says the worst is over in terms of iPhone sales.

Apple hit a wall trying to sell iPhones in the holiday quarter last year. It may not get past that obstacle until late next year.

That's the assessment of Timothy Arcuri, a financial analyst who covers the electronics maker for UBS. Apple's iPhone sales problems have almost certainly carried over into the current quarter and likely will plague the company for the rest of its fiscal year, which ends in September, Arcuri said in a research note on Monday. He doesn't expect the company's smartphone sales to rebound until it introduces its 2020 models in the fall of next year — and even that outlook is uncertain.

Apple CEO Tim Cook announced earlier this month the company saw disappointing sales in the fourth quarter last year and blamed depressed demand in China for the results. The Chinese economy has been slowing, and Cook said trade tensions also weighed on Apple's sales there.

"We believe the challenges in China would likely to continue and while a trade settlement could help, the damage in terms of iPhone is likely done," Arcuri said.

Arcuri is particularly pessimistic about Apple's iPhone sales

Apple likely sold 64 million iPhones in the holiday quarter, and will likely sell 41.5 million in the first quarter, he estimated. For all of Apple's fiscal 2019, it will likely sell 180 million iPhones, he said.

All of those estimates are below Wall Street's consensus forecasts. On average, analysts predict Apple sold 68 million iPhones in the fourth quarter last year, and will sell 45 million in the first quarter, and 195 million for its full fiscal year.

By contrast, Apple sold 77 million iPhones in the holiday quarter of 2017, 52 million in the first quarter last year, and 218 million for its fiscal year that ended last September.

Arcuri didn't offer an estimate for how many iPhones Apple will sell in 2020, but his revenue guidance for the year implies that he's forecasting continued depressed sales. He expects Apple to post $136 million in iPhone revenue in its 2019 fiscal year and $141 million in fiscal 2020. In fiscal 2018, Apple pulled in about $165 million in iPhone sales.

The company's surprise warning earlier this month has left analysts scrambling to adjust their iPhone sales estimates. Arcuri's projections are notably more pessimistic than those of TF International Securities' Ming-Chi Kuo. In his own note Monday, Kuo predicted Apple would sell 188 million to 192 million smartphones this fiscal year.

Last week, Intel gave a window into Apple's iPhone sales shortfall in the holiday quarter when it released its own earnings report for the period. The company said its cellular modem sales were $200 million less than it expected in the quarter. Given the price of the modems, that number implied that Apple could have sold 11.8 million fewer iPhones than expected in the period.

Arcuri remains bullish on Apple

Apple has struggled since raising prices when it introduced its latest batch of phones last year. The company has reportedly had particular trouble selling its iPhone XR model, which was supposed to be more attractive to consumers because it costs less than its iPhone XS and XS max devices. Instead, Apple has repeatedly cut production on the model in the face of weak demand, according to multiple reports.

While Arcuri expects Apple's struggles to continue this year and next, he thinks its smartphone fortunes could turn around in the fall of next year. It could introduce then a model that has a foldable screen and the ability to connect to the wireless carriers' high-speed 5G — or fifth generation — networks.

"This is likely the next big phone cycle," he said. But, he continued, "there are still clearly ... many unknowns."

Despite his pessimism Apple's iPhone sales, Arcuri is bullish on the company's stock. Arcuri, who has a buy rating on Apple's shares and a $180 price target, thinks the company's fortunes and share price will be boosted by its emerging services business, which includes subscription businesses like iCloud and Apple Music.

Apple's shares closed Monday down $1.46, or 1%, to $156.30.

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