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Morgan Stanley predicts AAPL will see its first ever drop in iPhone sales next year [Updated]

iphone-sales

Update: Fortune reports that in a conference call, Huberty said her forecast was in part based on an estimated 10% drop in component orders. She noted that this could be due to robust inventories rather than weak demand, and that the numbers in the note were a ‘worst-case’ scenario. Huberty emphasized that she remains upbeat on Apple, citing a strong brand, loyal customers, R&D investment and other revenue streams compensating for weaker predicted iPhone sales.

[tweet https://twitter.com/philiped/status/676410189852078080 align=’center’]

The brand is strong. Customers are loyal. Gross margins are stable. R&D is going full tilt. And revenue streams from new products (Watch, Apple TV), apps, and media could start to make up for slowing iPhone growth.

An investment note by Morgan Stanley Katy Huberty predicts that Apple will see its iPhone sales fall by 5.7% in Apple’s 2016 financial year, reports Business Insider. The prediction is significant for two reasons: if realised, it would be the first time since the launch of the iPhone that sales have fallen year-on-year – and the forecast is made by a noted Apple bull.

Morgan Stanley thinks that Financial Year 2016 iPhones sales will be 218 million – a 5.7% drop — while Calendar Year 2016 sales will be 224,000 — a 2.9% drop. These predictions are significantly below Huberty’s previous estimates, of 247 million for FY2016 and 252 CY2016.

One of the reasons given isn’t new – high smartphone penetration in developed markets – but Huberty says there is a second reason …

Huberty notes “higher prices in international markets,” citing China as a specific example.

KGI’s Ming-Chi Kuo recently predicted that Apple could see slowing iPhone sales early in 2016, but said that this was due to the usual seasonal effect following the holidays, and that the expected 4-inch model could reduce the scale of the slowdown.

Huberty does, though, expect Apple’s total revenue to grow by 2% next year thanks to the Apple Watch and other new services.

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Comments

  1. lkrupp215 - 8 years ago

    Oh look, mommy! Another Apple is Doomed™ article. Can I read it? Oh please, mommy, let me read it. I like scary stories.

    • alexandereiden - 8 years ago

      I do’t know why but couldn’t keep my composure after reading this, I was dying on the floor 😂

    • uniszuurmond - 8 years ago

      This is not another Apple Is Doomed article (though I thought that was quite sharp). See, I live in a third world country outside the USA, and I can tell you this is a real problem. The average American salary for a Receptionist is $23,000 per annum. In our country, with our really poor exchange rate, it is $5,000 per annum. Now consider that electronics carry with them a hefty import tax, and it becomes even more expensive. That’s why the cheap Android phones like Xiaomi is making a killing. Now, it’s not that Apple won’t sell here, they are still liked by many, but people tend to either buy it for four years, or pass them on to other family members, which means less sales down the line. So I actually understand why Morgan Stanley is saying what they do, and in a weird twist of irony I hope it becomes the truth, as Apple will then be forced to come up with a different strategy for developing markets.

      • People making $5000 per year have never driven growth in any high end market for Apple nor anyone else. This is like saying that Apple won’t be able to sell phones in a country composed of mostly vegetarians – it’s irrelevant.

      • lkrupp215 - 8 years ago

        It’s not the number of units sold that matters. It’s the profit made on each unit. You say Xiaomi making a killing? Doubtful from a profit perspective. The race to the bottom has been the downfall of many a company seeking market share. Look what’s happened to Samsung lately. Business is not an altruistic endeavor. Your fellow citizens cannot afford to buy Apple products? Not Apple’s problem any time soon.

      • uniszuurmond - 8 years ago

        @Bruno: $5,000 is what receptionists earn. We also have some of the wealthiest people in the world, and a large upper middle class. The problem is that Apple doesn’t undeestand how to mine this.

      • uniszuurmond - 8 years ago

        @lkrupp. Selling 1M units with $10 profit is better than selling 10k units with $100 profit. You don’t seem to understand how lucrative this market really is. More people own smartphones than landlines here by a factor of over 10. Apple is scratching the surface in India with their latest price reduction on the 5s, but there’s a lot more money they can make here. And the real win is getting people into their ecosystem rather than Android’s.

      • lkrupp215 - 8 years ago

        “ Selling 1M units with $10 profit is better than selling 10k units with $100 profit.”

        We’ve heard this tune played over and over and it’s simply not true. If it were then all those billions of cheap Android phones out there would be putting Apple out of business and there would be some really wealthy smartphone companies… but that’s not happening. And by the way, your argument was made by the same analysts who said China would be Apple’s downfall. The Chinese market, it was said, would not support premium prices for premium phones. Apple was advised it simply had to go cheap to succeed in China. Lather, rinse, repeat. Same old, same old and Apple doesn’t play by those rules.

      • taoprophet420 - 8 years ago

        How. I have is the monthly tarif for phone calls and data service? The US has some of the worlds highest cost plans. Total cost of ownship has to be factored instead of I ital cost of the phone. Also many providers across the globe are moving to installment payments or loansto purchase high end smartphones.

      • uniszuurmond - 8 years ago

        @lkrupp. I was always the one who supported Apple being a premium product at a premium price, even in China, so we agree on that. However, when your total market is only 40M people, you have to question why Apple is here, investing heavily in their presence, but at a price point that will continue to lose them money here rather than make money. We simply don’t have a large enough population and therefore large enough wealthy class to continue supporting this strange economics, hence my comment on lower prices.

      • uniszuurmond - 8 years ago

        @taiprophet. You should see the ridiculous prices we have. Our unlimited packages (voice and text) with a mere 2GB data (1 line only) will cost you in the region of $80pm, compared to for example T-Mobile’s $30 per month.

      • uniszuurmond - 8 years ago

        Correction. T-Mobile price above should read $50. However, at least there is an option for multiple lines at discounted prices, here we have to pay full price for every additional line.

    • jmiko2015 - 8 years ago

      In a country where average monthly salary is 600€ and iPhone costs 700, how many people do you think will buy it? Consider a lot of taxes as well. In fact I wouldn’t be surprised if Apple’s market share will drop a little bit. May also make them stop dreaming and start doing something really useful, like optimizing iOS and making Siri available everywhere. I hope Apple will get this wake-up-slap from the market and I’m a long-time Apple user and a fan.

      • markpetereit - 8 years ago

        Your country is not Apple’s demographic. So?

      • jmiko2015 - 8 years ago

        then why is Apple selling it’s stuff here?

      • uniszuurmond - 8 years ago

        So then allow me to move to your country without the need for a Green Card. And don’t say no, because discriminating on race or place of birth is exactly the same.

      • bb1111116 - 8 years ago

        jmiko2015; “then why is Apple selling it’s stuff here?”

        For general computing devices (smartphones, PCs) Apple sells to the high end niche. That is its business model.
        In a poor country there are going to be some people who can afford to buy Apple products. Those are Apple’s customers.

      • uniszuurmond - 8 years ago

        So why then did Apple discounted the 5s almost 50% in India compared to elsewhere?

      • Joe (@JoeC128) - 8 years ago

        An European country with that low average salary is not important for Apple, unless it has huge population. Developing countries with a huge population of rich people like India or China are among the main targets. Check that over 50% iPhone 5S discount in India from Apple. Or the amount of Apple stores in China.

      • bb1111116 - 8 years ago

        uniszuurmond;
        “So why then did Apple discounted the 5s almost 50% in India compared to elsewhere?”

        Good question; about the 1/2 price for the 5S in India that is an older device which has less memory (probably 8 GB).
        But a $350 iPhone still cannot compete against $100 to $200 Android phones.
        But Apple knows that India has a huge, fast growing economy. It knows that the middle class in India soon will be very large.
        Apple wants more customers in India knowing that in a few years there will be a large middle classs able to afford many regularly priced Apple products.

        Apple has offered discounts on the iPhone 4 and 4S in the past (though about $100 more than this 5S deal in India).
        If an economy is growing fast, Apple may try having more of a presence there with one discounted product.

        But overall keep in mind that Apple’s worldwide smartphone marketshare is only 15%. In many parts of the world the iPhone’s share of the market might be 1 or 2%. Apple will never get the marketshare of Android. Apple will always be looking for customers with higher incomes. That again is its business model.

      • uniszuurmond - 8 years ago

        @Joe. I am not in a European country. We have a population of 60M with 40M buying smartphones.

      • Joe (@JoeC128) - 8 years ago

        uniszuurmond: sorry for the confusion, meant to be adressed to jmiko2015

    • Cold Spring - 8 years ago

      Laugh all you want ifans, but iphone sales had a historic decline in Q1 2016 to 71. 5 million (per Gartner). Iphone sales will also decline in Q2 2016, this time from mouth of Tim Cook! Two straight quarters of iphone sales decline YOY. Can we make it 3? How about long losing streak like ipad?

  2. robkow86 - 8 years ago

    Not hard to believe when the upgraded iPhone 6s isn’t all that better than its predecessor. Oh and the fact that the iPhone 6 cycle was so large. Gee didn’t see this coming. I am so enlightened now.

  3. Ilko Sarafski - 8 years ago

    Ben, thanks for the article. What do you personally think? Because I remember your post and our little “argument” (or rather chat) about the possibility of 6S to sink in sales. Which didn’t happen and 6S sold better than the 6. I am pretty sure that we’ll see the same thing here – the 7 will be changed rather dramatically in design which will lead a lot of people to buy it (as well latest-the-greatest + switchers + newcomers + emerging markets + China). We’ll see but maybe 7S won’t outsell the 7… P.S. It doesn’t actually matters that much I guess after all.

    • Ben Lovejoy - 8 years ago

      Personally, I’d be surprised if we see anything more than the usual dip before the new model.

      • blockbusterbuzz - 8 years ago

        I agree, but wouldn’t this potential smaller iPhone actually help shoot the iPhone figures up? Interested in what you think.

      • Ben Lovejoy - 8 years ago

        I would have thought so

  4. rogifan - 8 years ago

    Either these analysts are going to look like massive fools or Apple stock is going below $100.

    • Steffen Jobbs - 8 years ago

      Apple stock is likely heading to $100 but don’t blame the analysts. Apple is making Apple shareholders look like massive fools. Blame all the investors who’ve lost faith in Tim Cook and Apple being able to increase company revenue. Apple could be finding other ways to increase revenue apart from only trying to increase iPhone sales. Apple can certainly afford to invest in other businesses like rival companies do. A company can’t just sit back on its laurels and expect potential investors to get excited. Sometimes a company needs to try to generate excitement or just make the expected revenue increases. Either way, these analyst reports are certainly scaring people into tossing their Apple shares. There’s no real commitment to owning Apple stock for recent buyers.

      • rogifan - 8 years ago

        Who says Apple is only investing in iPhone? In Apple’s 10k filing it says capital expenditures for 2016 will be $15B. No way is that all being spent on iPhone.

      • rnc - 8 years ago

        So, what you are saying, is that Apple should just make silly hype fests, like Microsoft’ HoloLens and Google self-driving car?

        LOL.

        That’s not for Apple.

  5. Mario Cunha - 8 years ago

    i don’t know how it will be the sales of 6s before at the end of the year cycle (before iPhone 7). But i really believe iPhone 7 will be HUGE success.

    • yojimbo007 - 8 years ago

      The 10th iphone anniversary with ios 10..
      Im also convinced apple will make a big statement with it !

  6. iSRS - 8 years ago

    The thing is? Easy to say. Repeat it again next year. Why? It is BOUND TO HAPPEN.

    • dcperin - 8 years ago

      Absolutely…. They say this every single year and it never happens.. Eventually, yeah it’s gonna happen….and they’ll say “Look at me, I was right. I told you it would happen.” Congrats, 10 years of saying it would happen, it finally happened..

      Also, I just don’t see iP sales dropping on a new design year.

  7. 1. Strong US dollar means Apple in better position to secure components.
    2. Greater integration of discrete parts into SoC means less component orders next year
    3. Apple is averse to, but not incapable of adjusting ASP to stimulate demand

    The analysis reported here cherry-picks a few numbers and draws conclusions that previous similar reports have not born out. You can expect the fact to unfold over the next 12 months in a manner contrary to this story as surely as tomorrow the sun will rise again.

  8. b9bot - 8 years ago

    Here we go again with the component orders thing. How many times has Tim and the excecs pointed out that they change there suppliers to components all the time. This doesn’t mean any drop in orders except from that one supplier which was offset by ordering from another one which these people obviously can’t figure out. They have said this happens a lot for a lot of different reasons. They are trying to analyze things to deeply and second guessing everything as negative. I never see this happening with any other company to this level. So if smartphone sales are saturated then why aren’t all those android companies dropping even more because they are barely making money as it is. Google should be dropping 150 dollars a share on there stock if the market is so saturated. It would hurt those companies far more than Apple who make 96% of the profits from smartphone sales.

    • Jonas Graae Rasmussen - 8 years ago

      Good point, every day there is a new post where apple is more doomed than the day before. Apple is making all the money in business, sales in china increased with 84% percent in 2015 compared to 18% in 2014, iPads Pro will hopefully stop the downfall in iPad sales, New awesome AppleTV, Itunes Music, Apple Watch, always increasing iTunes/app store sales, increasing margins, low P/E. What is not to like about this specific stock. Either they’re shorting the stocks, or analyst do not get anything. No way there is going to be a 5 % drop in iPhone sales, when sales went up 37 % in 2015 thanks to extreme growth in china. And Apple already having it’s next aim on India with (maybe) a new iPhone and reduced prices on iPhone 5S.

  9. RP - 8 years ago

    On a positive note, the 6 series was jot one people have lots of passion for. Yes the bigger screen was nice and there was pent up demand for that, but not exactly the kind of passion of the 4 or 5. I skipped the 6 series because it felt like I was down grading. So i can’t wait for the 7.
    Hopefully it won’t disappoint.

  10. flaviosuave - 8 years ago

    It’s the year 2025…

    Morgan Stanley: “Apple now owns approximately 50% of the world’s cash and cash equivalent resources. With less than 50% opportunity available for expansion, we see Apple’s future growth inevitably declining, and for that reason we are downgrading our forecast for the stock price.”

  11. dcperin - 8 years ago

    Doesn’t some analyst predict this every single year? Also, I highly, HIGHLY doubt that Apple iP sales drop on a new design year… Maybe they drop for the 7s, but for a new redesigned iP 7? Na…

  12. Soluble Apps - 8 years ago

    Simple rule for all future articles on forecasted Apple results:

    Show a graph of what this person predicted those results would be, every year, for 3-5 years, compared to the actual figures.
    If someone is within 10% every time, then we’ll listen, otherwise you can safely ignore them.

  13. Doug Bixler - 8 years ago

    You smell that? It’s called bullshit…

  14. Claumy Jean-Francois - 8 years ago

    Unless they realize that we should get what we want, it will all go south badly. IR Blaster, Stereo speakers, expandable memory, removable battery, no buttons in the front, all screen and less bezel…

    • dcperin - 8 years ago

      I’d be shocked if expandable memory is ever an option on iP. Having a 200+ gb phone is just overkill anyway. There’s this thing called the cloud now days. The bezels and more screen I’m with you on. The IR blaster? Idk, even with the Android phones I’ve owned I’ve just never had this urge to skip reaching over for the remote control and instead use my phone that I have to look down at to make sure I’m hitting the correct buttons. Whereas my actually tv remote I can feel the buttons. Stereo speakers, ok but don’t most people use headphones with their mobile device? Apple could definitely make some improvements. No smartphone is perfect and ‘has it all” but the things you’re listing aren’t going to make or break the iPhone line.. Just not happening. I would enjoy things like a better display, a better camera and battery life though. None of these things are so bad that they keep me from buying an iP…..

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Avatar for Ben Lovejoy Ben Lovejoy

Ben Lovejoy is a British technology writer and EU Editor for 9to5Mac. He’s known for his op-eds and diary pieces, exploring his experience of Apple products over time, for a more rounded review. He also writes fiction, with two technothriller novels, a couple of SF shorts and a rom-com!


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