Apple Inc. (AAPL) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Apple Q2 FY 2021 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Tejas Gala, Director, Investor Relations and Corporate Finance. Please go ahead. Tejas Gala: Thank you. Good afternoon and thank you for joining us. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Luca Maestri. After that, we'll open the call to questions from analysts. Tim Cook: Thanks, Tejas. Good afternoon, everyone, and thanks for joining the call today. Apple is proud to report another strong quarter, one where we set new March quarter records for both revenue and earnings, besting our year ago revenue performance by 54%. Reflecting both the enduring ways our products have helped our users meet this moment in their own lives as well as the optimism consumers seem to feel about better days ahead, we set new March quarter records in every geographic segment, and success was broadly distributed across our product categories. Mac and Services delivered all-time record results, and we set new March quarter records for iPhone and Wearables, Home and Accessories. To provide some color on our results, let's turn to our product categories. We saw a very strong performance for iPhone, which grew 66% year-over-year driven by the strong popularity of the iPhone 12 family. With unmatched 5G capability, the best camera system ever in an iPhone and advanced durability from ceramic shield, this family of devices is popular with both upgraders and new customers alike. And just last week, we unveiled an all-new purple finish for iPhone 12 and 12 Mini. As has been the case throughout the pandemic, iPad and Mac continue to be critically important tools for our customers. Over the past year, tens of millions of iPads and Macs have been deployed to help students learn, creators create, and to enhance remote work in all of its forms. This has helped iPad grow very strong double digits to its highest March quarter revenue in nearly a decade. On Mac, fueled by the M1, we set an all-time revenue record continuing the momentum for the product category. In fact, the last three quarters for Mac have been its three best quarters ever. Last week, both iPad and Mac took a big step forward. We debuted a radically redesigned brand-new iMac designed around M1's unmatched capabilities, and we've brought M1 to iPad for the first time in the new iPad Pro with 5G capability and a Liquid Retina XDR display. Luca Maestri: Thank you, Tim. Good afternoon, everyone. We are extremely pleased to report record results for our March quarter despite continued uncertainty in the macro environment. We've been operating in new ways for over a year, and we could not be more proud of the way our team continues to execute and innovate at unprecedented levels. Our revenue reached a March quarter record of $89.6 billion, an increase of over $31 billion or 54% from a year ago. We grew very strong double digits in each of our product categories, with all-time records for Mac and for Services and March quarter records for iPhone and for Wearables, Home and Accessories. We also set new March quarter records in every geographic segment with growth of at least 35% in each one of them. Products revenue was a March quarter record of $72.7 billion, up 62% over a year ago. As a result of this level of sales performance and the unmatched loyalty of our customers, our installed base of active devices reached a new all-time record in each of our major product categories. Our services set an all-time record of $16.9 billion, growing 27% over a year ago. We established new records in each geographic segment and in most service categories. I will provide more details about the performance of our services business later. Tejas Gala: Thank you, Luca. Operator, may we have the first question, please? Operator: We'll take our first question from Shannon Cross with Cross Research. Please go ahead. Shannon Cross: Tim, I had sort of a big picture question on iPhone. I'm just curious, there are so many different things happening in this cycle, 5G, pandemic. How are you thinking about the opportunity for refreshing the installed base and attracting new customers? And are you seeing lives shorten given some of the programs that are being put out there by the carriers and by yourself? Just kind of maybe big picture, if you can talk about what you're seeing in terms of iPhone out there in the market. Tim Cook: Sure, Shannon. We saw double-digit increases on a year-over-year basis on both the new to iPhone and upgraders. So -- and in fact, in the March quarter, there was actually a record number of upgraders for a March quarter. And so we like what we see. It's obviously the early days of 5G. Different countries are in different points. But penetration is still -- on a global level, is still low at this point. And so a lot of the 5G upgrades will be in front of us, not behind us. You see in China, things have moved quickly to 5G. They're moving quickly in the United States. But a lot of the other regions are slower to adopt and slower to gain coverage in 5G. Shannon Cross: Okay. And then, Luca, can you talk about gross margin? I mean 42% is higher than it's been that I can kind of remember actually at this point, so maybe if you talk about the drivers of gross margin, and maybe if there were any offsets from higher component costs or the logistics costs that obviously were overshadowed by currency and other things? Luca Maestri: Yes, Shannon. Yes, we did 42.5% during March, and we've guided to similar, slightly lower levels for June. So for March, we were up 270 basis points sequentially, really driven by three major factors. Cost savings, which has been good for us during the cycle. A really strong mix, a strong mix on iPhone, but in general, across all product categories, and that obviously was helpful. And foreign exchange sequentially, again, from December to March, was favorable 90 basis points. So that helped as well. So those are the three major factors there. As we transition into June, as you know, that we will expect some level of deleverage but that will be offset by cost savings. Foreign exchange doesn't have much of an impact as we go from March to June. Operator: We'll now take our next question from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: I have two as well. First one, just on services, I think 90 days ago, the expectation was that line item would decelerate a little bit into the March quarter. It turned out it actually accelerated for us. I'd like to just understand what do you think drove that acceleration specifically? And is mid-20% sort of the growth norm as we go forward for Services? Luca Maestri: So Amit, -- our Services business did better than what we were expecting when we had the last call in January. It was stronger across the board. One of the things that we've noticed is that throughout COVID was that obviously digital services have done very well. And then we've had a couple of categories like Apple Care because many of the points of sale and stores were closed and advertising because of the reduced economic activity that were negatively affected during COVID. During the March quarter, we've seen a return to growth on Apple Care and obviously, we've reopened a lot of the stores during the course of the quarter. And advertising, obviously, consumer sentiment has improved and advertising is coming back. And so the combination of these factors really delivered this very, very strong performance during the March quarter. As we look ahead, as you know, we don't provide specific guidance for our product categories. But in general, I talked during our prepared remarks, I mean, there are a number of things that we always look at around the Services business, how many new paid accounts do we have, what number of new subscriptions do we get that -- above all, is our installed base continuing to grow? Are we adding new services? Are we improving the quality of the existing services? And so, when we look at all these fundamental vectors of our Services business, obviously we feel very good. We feel very good about it. Amit Daryanani: Got it. That's helpful. And then, Tim, if I could follow up with you, it seems like engagement with iPhones and Apple devices generally has gone up materially over the last 12 months. And I don't think replacement cycles, at least in the data we see, has shrunk or changed that much at the end of the day. I'm wondering does that combination of increased usage, replacement cycles haven't changed, end up in iPhones potentially growing on a multiyear basis, because I would imagine if I'm using something more I have to replace it more often. So, I'd love your perspective on it. Tim Cook: Yes. We're clearly seeing strong performance in both the new to iPhone or the switcher component and upgraders as I'd mentioned before. And in fact, the upgrader was the best March quarter that we've ever had in -- and so that speaks to what you're seeing, I think, a lot. It's difficult with just this far into the cycle to make a statement about the cycle in general because keep in mind that we just launched midway through the Q1 period. And so, we've only been operating for 4.5 months or so. But clearly, we like what we see right now a lot. If you look at how the iPhone did around the world, we had the top five models of smartphone in the U.S., the top selling, the top two in urban China, four out of the top five in Japan, the top four in the U.K., and the top six in Australia. And so, it was sort of across the board in some really key countries, we did really, really well. I do think that the 5G cycle is important, and we're in the early days of it, frankly. Operator: We'll take our next question from Katy Huberty from Morgan Stanley. Please go ahead. Katy Huberty: This was a pretty unbelievable quarter, and investors are going to ask about the sustainability of current demand trends, especially as you lap some of the benefits from COVID in areas like services and Mac later this year. So I know you don't guide beyond or provide an outlook beyond the next quarter. But can you talk from a high level over the next year, which segments do you see the opportunity to maintain strong revenue growth versus where is it reasonable to assume there will be some digestion as consumers shift their spending priorities? And then I have a follow-up for Luca. Tim Cook: If you sort of look at the different products, iPhone, I've already mentioned some of the great momentum that we had there. Keep in mind that the compare that we're running to would be the quarter, the Q2 of last year is the quarter that China would have entered a shutdown first and then the rest of the world entered the shutdown in middle part of March. And so part of the growth is compared -- is the comparison point. But that said, the results were fabulous across the board. The shortages that Luca spoke about in the color that he provided on the future, affect primarily the iPad and the Mac. And so we'll have some challenges in there, and challenges in meeting the demand that we've got. The demand feels very strong right now. Both on the Mac side, you have the combination of M1 and work from home and remote learning. And then iPad, you've got remote learning and work from home as well. And the product that we just announced is really killer, the iPad Pro with the M1 in it. And so there's a lot of great things of the strength of the product cycle in addition to the trends that we're seeing in the marketplace. And where this pandemic will end, it seems like many companies will be operating in a hybrid kind of mode. And so it would seem that work from home and the productivity of working from home will remain very critical. If you look at Wearables then, the watch had a fabulous quarter. And I still think we're in the early innings on the watch. The number of new -- people that are new to the watch is almost three out of four. And so this is a long way from being a mature market. And so -- and then the Services by itself has really accelerated. And so all in all, we feel very, very good. Katy Huberty: And then, Luca, as I look at inventory plus vendor nontrade receivables, that grew only about 8% this quarter which is a big deceleration from last quarter. Should we read into that as a leading indicator for how we should think about the revenue growth deceleration in the business as the world normalizes? Or were there some supply disruptions during the quarter that caused you to drain inventory and create that tightness that you're talking about for June? Luca Maestri: No. On -- as you think about the June quarter, Katy, I would point you to what we said in our prepared remarks around the two factors that will influence our normal seasonality, right? One is the fact that iPhone, we launched iPhone later than usual during this cycle. And so we reached supply-demand balance only during the March quarter, which makes obviously the sequential decline steeper than usual. And then this $3 billion or $4 billion of supply constraints that Tim just said, primarily on iPad and Mac. So as you look at your model and you obviously can look at our numbers that we've done in the past, I think you can try to gauge that. From a channel inventory standpoint, we did what we normally do during a March quarter. So we reduced inventory as it's typical on iPhone. We exited within our target range. So I would say that on the inventory side, it was pretty straightforward Obviously, given that the supply constraints are on the iPad and on the Mac, we wish we had more inventory of iPad and Mac. But this is all a function of high demand for all our products. Operator: We'll take our next question from Wamsi Mohan with Bank of America. Wamsi Mohan: Tim, your content offerings are still at very compelling price points. And you've seen other content providers, whether it be Spotify, Hulu, Netflix, all announced price increases recently. I'm just wondering how you're thinking about pricing as it pertains to your offering here? And if you could share any stats around the uptake of TV+ paid subs that would be great. And I have a follow-up for Luca. Tim Cook: TV+ -- let me start with TV+. TV+ is going very well. As you know, the objective and the philosophy that we've had on TV+ is to create high-quality original content and to be one of the most desired platforms for storytellers. And I see that happening day by day as we sign more shows and more storytellers including Malala as I'd mentioned in my opening comments. To date, we've received -- the Apple originals have received 352 award nominations and had 98 wins. And this is from Oscar nominations to Indie awards to Critic Choice awards and all the rest. And we've got some shows that are -- have gotten significant buzz like Ted Lasso and The Morning Show and Defending Jacob and many others. And so we feel really good about where we are. We're not releasing subscriber numbers. But we feel good about where we are. In terms of other services and pricing, I don't have anything to announce today. We try to give the customer a great value. And we feel that we're doing that in the -- with the prices that we've got. And we'll see where we go from here. Wamsi Mohan: Okay. As my follow-up, Luca, on the June quarter guide, when you talk about the sequential decline being a little bit about perhaps the 13% or low-teens percent that we've seen historically. Are the supply constraints of the $3 billion, $4 billion impact included in that? Or is that in addition to sort of the more than average sequential decline that you're referring to? And any color on what specifically is driving the supply constraints of the subcomponent level? Luca Maestri: So when you look at our normal seasonality, and you've mentioned a percentage that is really an average of several years, what we're saying is that we believe that the sequential decline this year is going to be higher than that. And it's a combination of the two factors, right? One is the timing of the launch and then the very high demand for iPhone during the March quarter. And the $3 billion to $4 billion supply constraints that we mentioned. Yes, and the constraints come from the semiconductor shortages that are affecting many, many industries, and it's a combination of the shortages as well as the very, very high level of demand that we are seeing for both iPad and Mac. For Mac, for example, if you just -- just to keep it into context, the last three quarters of Mac have been the best three quarters ever in the history of the product, right? So we are experiencing an incredible level of demand, which certainly is favored by working from home and learning from home environment, but also by the incredible amount of new products and innovation that we put into the products that we launched during the last couple of quarters. Operator: We'll take our next question from Aaron Rakers with Wells Fargo. Aaron Rakers: Congratulations on the great quarter. I wanted to go back to iPhone. As we think about the iPhone 12 cycle, appreciating that you guys don't give actual shipment numbers, it would appear though that the mix has been quite healthy. So I'm wondering if you could give us any context of what in this cycle you're seeing in terms of the mix relative to past cycles? Is that mix sustainable? I'm just trying to understand kind of the mix of -- within the iPhones and how that's driving, I guess, particularly gross margin. And I have a follow-up. Tim Cook: Aaron, let me give you a little color on that. The iPhone 12 of the -- the iPhone 12 family are or more broadly affect all iPhones. The iPhone 12 is the most popular. But we did see very strong sales of the Pro portion of the family as well, the Pro plus the Pro Max. And so the revenue that you're seeing is a function of unit growth and revenue per unit growth. Does that help? Aaron Rakers: Yes. Can you give any context of how that might have changed this cycle relative to the prior cycles? Have we seen kind of a structural change to the higher band of the product category that you believe can be sustained going forward? Tim Cook: We don't predict going forward other than for our internal use. But we're really happy with the results. Aaron Rakers: Okay. And then as a quick follow-up back to the supply constraints. I guess it's hard to kind of see again, looking forward beyond this quarter. But what's your best assessment of when maybe the supply constraints could ease? Do you have any views of just the industry in general, overcoming some of the supply constraint dynamics? Tim Cook: Most of our issue is on legacy nodes. And so on legacy nodes, there are many different people, not only in the same industry, but across other industries that are using legacy nodes. And so in order to really answer that question on -- accurately, we would need to know the true demand from each of these players and how that's going to change over the next few months. And so it's very, very difficult to give you good answer. I think we have a good handle on our demand. But what everybody else is doing, I don't know. And so we will do our best. That's what I can tell you. Operator: We'll take our next question from Harsh Kumar with Piper Sandler. Harsh Kumar: Congratulations on a very nice quarter. Question on semis supply as well. You just beat by a substantial margin on the top line in the March quarter. I'm curious what went in your favor to be able to secure that kind of supply that you were able to beat by, I think it was $11 million or so? And then I had a follow-up. Tim Cook: We did not have a material supply shortage in Q2. And so how are we able to do that? You wind up collapsing all of your buffers and offsets. And that happens all the way through the supply chain. And so that enables you to go a bit higher than what we were expecting to sell when we went into the quarter 90 days ago. Harsh Kumar: That's very helpful. And then for my follow-up, I know there's a lot of moving parts, Tim, but with the economy sort of reopening here in the U.S., and you mentioned about supply constraints possibly on the Mac and the iPad. I was curious if I can get your thoughts, maybe just color-wise, on what you would expect for those two categories, Macs and the iPads in the second half of this year. Tim Cook: Well, we don't predict a rev guide to product-level detail. We're not even guiding to the top level at this point because of COVID. And so I'll sidestep that question. But I would point to Luca's point earlier about the shortages and those shortages primarily affect iPad and Mac. So, we expect to be supply gated, not demand gated. Operator: We'll take our next question from Krish Sankar with Cowen & Company. Please go ahead. Krish Sankar: Congrats on a fantastic quarter. First question for Tim or Luca. The Greater China sales were very strong in the March quarter. Can you give some color on what drove this strength. Which hardware products or services enabled the solid outperformance in China. And then I had a follow-up. Tim Cook: We were very pleased with our performance in China. We set a March quarter revenue record and grew strong double digits across each of the product categories. And so the revenue growth was broad. We've been especially pleased by the customer response in China to the iPhone 12 family. And as I had mentioned earlier, you have to remember that China entered the shutdown phase earlier in Q2 of last year than other countries. And so they were relatively more affected in that quarter, and that has to be taken into account as you look at the results. As I mentioned earlier, we had the top two selling smartphones in urban China, so we're very proud of that. And iPad, Mac both had enormously positive quarters with great strength across the board. And we're seeing a strong reception to the new iPad Pro as a well that we just announced. A lot of great comments and about 2/3 of the people buying Mac and iPad were buying them for the first time. And so we're attracting some new customers in China, which is really important to us. Krish Sankar: All right. That was very helpful, Tim. And then maybe as a follow-up, I kind of have like a big picture philosophical question, and to the extent you can answer this. One of the concerns many investors have is about the overhang of regulatory risk. I understand it's very hard to handicap that. But I'm kind of curious do you think giving more public disclosure on your Services business like App Store would help alleviate some of those concerns? Or do you think that's revealing a lot of competitive details. But kind of curious to know what you think on services disclosure. Tim Cook: I think with the regulatory questions and scrutiny, we have to make sure that we're telling our story and why we do what we do, and we're very focused on doing that. If we feel that more disclosure would help, we would obviously move in that direction. The App Store and other parts of Apple are not cast in concrete. And so we can move and are flexible with the times. For example, in the App Store, as you know, just a couple of quarters ago, we lowered the commission rate for small developers to 15%. So that was an example of moving with the times, and we've gotten a great, great reception to that. And so we continue to learn, and I think it's very important that we're very clear about why we do what we do. The idea behind curating the App Store in order to get the privacy and security that our customers want, I think is very important, and we have to convey that in a very straightforward manner. Operator: We'll take our next question from Kyle McNealy with Jefferies. Kyle McNealy: One of the things we've been positive about is how growing iPhone sales can pull along Watch and AirPods sales as well as customers shop the whole store. But you mentioned through COVID that accessories do much better in a physical store environment, and that's been hard due to the shutdowns, obviously. So my question is, have you seen any improvement in the attach rate for Watch and AirPods with iPhone? And can it get a lot better from here as the environment gets closer to normalization? Tim Cook: I think we get a lot of benefit from our stores when they're open and are fully operational. And we're in better shape for parts of Q2 than we were previously, but we're still operating with a limited operational model in many stores and there's still some stores today that are closed like stores in Michigan and stores in France and so forth. And so I think it will take some amount of time, but my view would be as the stores get back up to speed, fully up to speed, we should be able to increase some of the accessory sales. Although I think we're doing fairly well at the moment. So it's not something that we're not doing well. Online has been much more beneficial and much more productive than we would have guessed going into this. Operator: We'll take our next question from David Vogt from UBS. David Vogt: Congratulations on a great quarter. Maybe if I could just ask a question. I know it's early days, but any commentary color from maybe the developer community on App track -- on ATT and kind of what the initial feedback and data might look like that you could share with us? Tim Cook: Our ATT's focus is really on the user and giving the user the ability to make a decision about whether they want to be tracked or not. And so it's putting the user in the control. Not Apple, not another company, but the user of where it should be. And so that's really the focus of it. And the feedback that we've gotten from users, both before it went live when it was in the planning stages and so forth and after, has been tremendous. And so we're really standing up on behalf of the consumer here. David Vogt: Maybe just as a quick follow-up, Tim. Can you kind of discuss any sort of -- what the downloads have looked like. I know it just rolled out earlier this week and sort of the acceptance by the consumer at this point. Any sort of metrics that you can share with us, whether it's sort of an opt-in or opt-out sort of view from the consumer perspective? Tim Cook: I don't even know the answer to that. It's not something that we would have predicted beforehand. And frankly, even if it's very low of people that don't want to be tracked, it's worth doing because of the -- those people should have the -- should make their own mind up, whether they would like to be tracked or not. Operator: We'll take our next question from Samik Chatterjee from JPMorgan. Samik Chatterjee: I have a couple and just wanted to get into the performance by geography here a bit, and Europe really exceptional results, particularly for this time of the year. Tim, I know you mentioned some of the 5G iPhone upgrades are in front of you, and I would assume Europe is kind of in that category. But curious to hear or maybe if you can double-click on what's driving the exceptional growth here in Europe, and like are consumers moving to 5G phones even though some of the service provider plans are not rolled out? Or are we still expecting that to be much more in front of us? Luca Maestri: Samik, I'll take that one. You're right. I mean we had great performance in Europe. We grew 56% during the quarter. And it was probably one of the geos where we actually saw results that were better than even our own expectations. We grew very strong double digits across the board, every product category. Particularly, I would say, iPad and Mac, they really was very, very strong. Again, obviously, Europe has been affected by lockdowns. More than most parts of the world, the lockdowns have lasted longer than here in the United States, for example. Tim was mentioning there are places in Europe still today where our stores are closed. And fortunately, we have a very strong online business that has really helped us. But working from home, learning from home, limited entertainment options, that has all played in our favor. Keep in mind that our Europe segment is a very broad version of Europe because it includes Western Europe, which has done very, very well. And then Eastern Europe and it goes into the Middle East. Even India is part of Europe. And those emerging markets have done incredibly well, significantly better than company average. So very, very pleased with some of the results in India, for example, Russia, Middle East in general. So it's been very broad, both across product categories and across countries in Europe. Samik Chatterjee: Okay. Got it. And just a quick follow-up for you, Luca. I think overall, just wanted to understand the implication of the investment plans that you announced recently for the U.S., the $430 billion over a multiyear period, getting some questions from investors of how to think about the implication on the run rate of operating expenses for the Company. Luca Maestri: If you remember, we announced back in 2018 that we were making a very sizable commitment to the United States. We -- at the time we announced $350 billion of investment over the following five years. And during these three years, since then, we've overachieved on those commitments, and we felt it was the right time to update these type of investments. And they span from, obviously, the investment that we made directly at Apple. For example, we talked about the creation of 20,000 new jobs at Apple over the next five years in the United States. And of course, our business has grown. And so our commitment, for example, to U.S. suppliers grows over time, and that shows in the higher numbers. In the meantime, we've got into new businesses, for example, Apple TV+, a lot of the content that we developed for our TV service is produced here in the United States. And so that's additional investment here in the United States. From an OpEx standpoint, I think as you've seen this year, we're getting a lot of leverage. This is one of those years we said many times, sometimes our OpEx grows faster than revenue, and there are some other cycles where the opposite happens. We are growing revenue this year much faster than our OpEx increase. But we want to continue to make all the necessary investments into the business. We will never under invest in our business. And so you will continue to see the fact that we -- we will continue to grow our operating expenses, particularly on the R&D side, which continues to be the core of the Company. Tejas Gala: Thank you, Samik. A replay of today's call will be available for two weeks on Apple Podcast as a webcast on apple.com/investor and via telephone. The numbers for the telephone replay are (888) 203-1112 or (719) 457-0820. Please enter confirmation code 5799138. These replays will be available by approximately 5:00 p.m. Pacific Time today. Members of the press with additional questions can contact Kristin Huguet at (408) 974-2414. Financial analysts can contact me with additional questions at (669) 227-2402. Thank you again for joining us. Operator: Thank you. That does conclude today's Apple Q2 FY 2021 Earnings Conference Call. We thank you for your participation, and you may now disconnect.
UBS Stays Neutral on Apple as iPhone Demand Surge Seen as Temporary
UBS is holding its Neutral rating on Apple Inc. (NASDAQ:AAPL) with a $210 price target, noting that while recent iPhone sales data shows a strong start to the June quarter, the boost is likely short-lived and not indicative of a lasting trend.
According to supply chain insights and early sales estimates from Counterpoint, global iPhone sell-through for April and May is tracking in the mid-teens percentage growth year-over-year. UBS attributes this jump—similar to April’s 14% increase—to consumer concerns about potential iPhone price hikes driven by U.S. tariffs on Chinese and Southeast Asian imports, which may have pulled forward some demand.
iPhone sell-through is currently estimated to be around 4 million units higher than the same period last year. While that offers a temporary lift, UBS notes that these gains occurred during what are typically slower months for sales. With the June quarter typically averaging about 45 million iPhone units, the recent strength may not be sustainable.
Furthermore, the firm points to underwhelming announcements at Apple's WWDC and subdued purchase intent observed in its latest UBS Evidence Lab survey as reasons to expect a cooling in demand ahead. In UBS’s view, the market is unlikely to project this early-quarter momentum into future quarters without stronger product catalysts or demand drivers.
KeyBanc Sticks to Neutral View on Apple, Citing Solid iPhone Trends But Limited Upside
KeyBanc reiterated its Sector Weight rating on Apple (NASDAQ:AAPL), maintaining a neutral stance despite signs of continued hardware strength, particularly in iPhone sales.
According to May KFLD data cited by the firm, indexed spending fell 1% month-over-month—better than the typical three-year average decline of 2%—and remained up 22% year-over-year, though decelerating from April’s 38% growth. KeyBanc attributes the May performance to a demand pull-forward seen earlier in the spring, with spending levels elevated from a stronger starting point.
The firm believes current trends suggest resilience in Apple’s hardware segment, especially iPhones, and noted that carrier data on upgrade rates and new customer additions reinforces a stable demand environment. As a result, KeyBanc is holding its current estimates but considers them conservative.
Despite this, analysts don't see compelling valuation upside, citing Apple’s forward 2026 EV/EBITDA multiple of ~19.7x—slightly below its three-year average of ~21x—as still expensive in the context of the company’s expected growth.
Needham Downgrades Apple to Hold, Citing Growth Concerns and Valuation Pressures
Needham cut its rating on Apple (NASDAQ:AAPL) from Buy to Hold, flagging a mix of fundamental, competitive, and valuation headwinds that may limit upside in the near term.
The firm trimmed its earnings and revenue forecasts, citing slowing growth prospects and intensifying competition. Major tech rivals are targeting Apple’s lucrative platform fees, while advancements in generative AI could spur hardware innovations that threaten Apple’s device ecosystem.
Valuation was another sticking point. Apple is currently trading at over 26 times projected 2026 earnings—a level Needham considers elevated, especially without a clear catalyst to drive near-term acceleration.
The firm said a major iPhone upgrade cycle would be necessary to reignite momentum, but does not expect one within the next year. Analysts suggested a more attractive entry point would be in the $170 to $180 range. However, they also noted that if Apple were to aggressively develop a new advertising revenue stream, it could meaningfully boost both top- and bottom-line growth.
Apple Inc. (NASDAQ:AAPL) Faces Tariff Challenges but Maintains Strong Growth Prospects
- UBS maintains a "Buy" rating for Apple Inc. (NASDAQ:AAPL) despite a 20% decline in stock price, indicating confidence in long-term growth.
- Apple's potential tariff challenges could impact gross margins, yet its services business continues to grow, showcasing adaptability.
- The company's market capitalization stands at approximately $3 trillion, with a current stock price of $200.85, reflecting resilience amidst competition and market fluctuations.
Apple Inc. (NASDAQ:AAPL) is a leading technology company known for its innovative products, including the iPhone, iPad, and Mac computers. The company has built a strong ecosystem with approximately 2.3 billion Apple devices worldwide. Despite its success, Apple faces challenges, such as the recent decline in its stock price and increased competition from companies like Nvidia and Microsoft.
On June 1, 2025, UBS maintained its "Buy" rating for Apple, with the stock priced at $200.85. Despite a 20% decline in Apple's stock this year, UBS's decision to hold the current position suggests confidence in the company's long-term potential. Apple's market capitalization now stands at $3 trillion, trailing behind Nvidia and Microsoft, with the possibility of soon falling behind Amazon.
A significant factor contributing to Apple's stock decline is President Trump's plan to impose a 25% tariff on iPhones manufactured outside the United States. This tariff could severely impact Apple's gross margins, affecting its profitability. Despite this challenge, Apple's iPhone has been a key driver of its success, with no significant stumbles since its launch in 2007.
Apple's stock price currently stands at $200.85, reflecting a 0.45% increase with a change of $0.9. The stock has fluctuated between a low of $196.78 and a high of $201.94 today. Over the past year, AAPL has reached a high of $260.1 and a low of $169.21. The company's market capitalization is approximately $2.999 trillion, with a trading volume of 70.8 million shares on the NASDAQ.
Despite the recent decline, Apple's services business, particularly its App Store, continues to grow, fueled by the vast ecosystem of Apple devices. This growth highlights the company's ability to adapt and innovate, even in the face of challenges. As highlighted by Benzinga, Apple's stock performance may lag behind peers, but Wall Street remains optimistic about its future prospects.
Scotiabank Downgrades Apple (NASDAQ:AAPL) Stock to "Perform"
On May 2, 2025, Scotiabank downgraded Apple's stock (NASDAQ:AAPL) to a "Perform" rating. At that time, the stock price was $205.35. Apple, a leading technology company known for its innovative products like the iPhone and Mac, faces competition from other tech giants such as Samsung and Google. Despite this, Apple remains a dominant player in the tech industry.
Apple is experiencing a challenging year, as noted by Nabila Popal, senior director at IDC. Despite these challenges, Popal believes Apple's long-term outlook is strong. The stock price reflects a decrease of 3.74%, or $7.97, from its previous value. During the trading day, the stock fluctuated between a low of $202.16 and a high of $206.99.
Over the past year, Apple's stock has seen significant fluctuations, with a low of $169.21 and a high of $260.10. This volatility indicates the market's reaction to various factors affecting the company. Despite these fluctuations, Apple's market capitalization remains robust at approximately $3.08 trillion, highlighting its strong position in the market.
Today's trading volume for Apple is 91.85 million shares on the NASDAQ exchange. This high trading volume suggests active investor interest and engagement with the stock. As Apple navigates its current challenges, investors continue to closely monitor its performance and future prospects.
Scotiabank Downgrades Apple (NASDAQ:AAPL) Stock to "Perform"
On May 2, 2025, Scotiabank downgraded Apple's stock (NASDAQ:AAPL) to a "Perform" rating. At that time, the stock price was $205.35. Apple, a leading technology company known for its innovative products like the iPhone and Mac, faces competition from other tech giants such as Samsung and Google. Despite this, Apple remains a dominant player in the tech industry.
Apple is experiencing a challenging year, as noted by Nabila Popal, senior director at IDC. Despite these challenges, Popal believes Apple's long-term outlook is strong. The stock price reflects a decrease of 3.74%, or $7.97, from its previous value. During the trading day, the stock fluctuated between a low of $202.16 and a high of $206.99.
Over the past year, Apple's stock has seen significant fluctuations, with a low of $169.21 and a high of $260.10. This volatility indicates the market's reaction to various factors affecting the company. Despite these fluctuations, Apple's market capitalization remains robust at approximately $3.08 trillion, highlighting its strong position in the market.
Today's trading volume for Apple is 91.85 million shares on the NASDAQ exchange. This high trading volume suggests active investor interest and engagement with the stock. As Apple navigates its current challenges, investors continue to closely monitor its performance and future prospects.
Raymond James Cuts Apple Target to $230 on Tariff Risks, Still Sees Long-Term Upside
Raymond James lowered its price target on Apple (NASDAQ:AAPL) from $250 to $230 while maintaining an Outperform rating, citing growing concerns over tariff-related headwinds that could pressure earnings in the coming years.
The firm trimmed its 2025 and 2026 earnings forecasts, projecting that ongoing import tariffs could cut Apple’s EPS by 8% to 10% if fully applied. Although Apple has ramped up manufacturing outside of China—enough to meet roughly half of U.S. iPhone demand—the future tariff treatment of imports from India and Vietnam remains uncertain after a temporary 90-day exemption pause.
Raymond James now assumes a 15% blended tariff rate on all Apple imports, reflecting a cautious base-case scenario where Apple responds by raising U.S. prices, which could in turn dampen demand and compress earnings.
For the March 2025 quarter, the firm raised its estimates to $96.3 billion in revenue and $1.65 in EPS, up from $94.5 billion and $1.62, driven by strong iPhone 16e demand and consumer pull-forward ahead of potential tariff increases. However, the forecast for June was lowered slightly to reflect expected cost pressures, with EPS revised down from $1.50 to $1.44 and gross margins expected to decline by about 100 basis points.
Apple is expected to begin implementing price hikes in the September quarter to mitigate the impact, but overall, Raymond James reduced its 2025 EPS estimate from $7.31 to $7.15 and 2026 from $8.20 to $7.70.
Despite near-term volatility, the firm views any pullback as a buying opportunity, highlighting Apple’s dominant ecosystem, sustained double-digit growth in Services, and long-term potential from on-device AI capabilities.
