The Dow Jones Industrial Average fell over 600 points on Thursday as shares of iPhone maker Apple declined 9 percent in the early trading session.
“While it’s likely a combination of both macro and micro, the contribution of the former means that maneuvering through the upcoming earnings season will be like swimming in shark invested waters,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, about what prompted Apple’s guidance cut. “That said, I’d argue it’s more of the latter.”
Shares of Apple fell over 7 percent on Wednesday after trading was halted prior to the announcement. In a letter to investors, Apple CEO Tim Cook cited lower-than-expected iPhone revenue and China’s weakening economy as major headwinds for the tech giant.
Apple lowered its Q1 revenue guidance to $84 billion–down from the previous projection of $89 to $93 billion.
“If you look at our results, our shortfall is over 100 percent from iPhone and it’s primarily in greater China,” Cook told CNBC in an interview Wednesday. “It’s clear that the economy began to slow there in the second half and I believe the trade tensions between the United States and China put additional pressure on their economy.”
“We had sort of a collection of items going on. Some that are macroeconomic and some that are Apple specific,” added Cook. “And we’re not going to sit around waiting for the macro to change. I hope that it does and I’m actually optimistic, but we are going to focus really deeply on the things we can control.”
Two exchange-traded funds (ETFs) with the largest capital Apple allocations–Technology Select Sector SPDR ETF (NYSEArca: XLK) and Vanguard Information Technology ETF (NYSEArca: VGT) both fell over 4 percent.
Downgrades Abound for Apple
It’s been a case of kick Apple shares while they’re down as analyst downgrades hurt the stock late last year. Guggenheim Partners lowered its rating on the tech giant from “buy” to “neutral,” citing that a 5 percent decline in iPhone units will occur in 2019.
Guggenheim forecasted that a subsequent increase in prices would do little in terms of offsetting a decline in sales. In addition, the firm posited that overall demand for iPhones globally would wane.
Apple declined over 4 percent while Lumentum shares sank a record 30 percent. Lumentum’s reduced outlook came as one of its largest customers was asked to “meaningfully reduce shipments” for previous orders placed.
“We recently received a request from one of our largest Industrial and Consumer customers for laser diodes for 3D sensing to materially reduce shipments to them during our fiscal second quarter for previously placed orders that were originally scheduled for delivery during the quarter,” Lumentum President and CEO Alan Lowe said.
While Lumentum didn’t cite Apple specifically, analysts are quick to point at the iPhone maker.
“We think investors should consider Lumentum’s updated guide as reflecting as much as a 30 percent cut in Apple orders,” said Wells Fargo analyst Aaron Rakers.
Multinational investment firm UBS cut its 12-month price target of Apple by $15 to $225 and lowered its iPhone unit sales forecasts for the current quarter by 1.5 million to 73.5 million.
“We note these cuts are significantly less than the LITE news would imply,” said Tim Arcuri of UBS in his note. “Ultimately, we believe AAPL continues to face FX headwinds given ongoing [U.S. dollar] appreciation against key global currencies. In China, given [the dollar-yuan trade], the supply chain suggests many consumers are opting for high-end models w/similar specs from local competitors rather than the XR.”
Despite beating earnings and revenue expectations for its fourth fiscal quarter, murky forecasts for iPhone sales caused investment firm Rosenblatt Securities to downgrade the stock. Rosenblatt Securities changed their rating from “buy” to “neutral,” citing that higher iPhone prices won’t offset a weaker sales volume.
Bank of America Merrill Lynch issued a similar downgrade following the earnings report for “slower growth in app store revenue, especially in China; guidance for the December quarter that implies weaker-than-expected iPhone unit sale; investors will likely interpret ending iPhone unit sales figures as negative; and weaker growth in emerging markets because of the stronger dollar.”
“Calendar fourth-quarter guidance reflects our cautious view on weaker than expected sell-through and production reductions for iPhone XS/XR,” said analyst Jun Zhang. We “downgrade to neutral.”
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