Credit Suisse Reconfirms Apple Production Cuts, Weak iPhone 6s Demand

In a report issued Tuesday, analysts at Credit Suisse took a look into Apple Inc. AAPL, issuing an Outperform rating and $140 price target even though they pointed out that the company still looks vulnerable in the near-term.

The Credit Suisse Asia Technology Team’s most recent –November- survey confirmed that “the iPhone supply chain orders will be weaker than originally forecast.” In the experts’ view, more news about weakness in the supply chain could impact negatively on Apple’s stock over the next few weeks or even quarters. However, the analysts still think that “with high retention rates, continued installed base growth, and the optionality of a smaller 4-inch iPhone,” the stock remains an Outperform.

The Asia Tech Team also confirmed that, in November, Apple trimmed its component orders. The company now expects builds of 70-75 million in December and 45-50 million in March -- note that the estimate for March includes as many as 4 million iPhone 6c. Weak demand for the new iPhone 6s seems to be one of the main drivers behind the aforementioned drop.

As mentioned in previous reports, Credit Suisse anticipates “a subdued iPhone cycle for the next few quarters.” Thus, they maintain their below consensus estimates of 78 million for December and 55 million for March. They are also maintaining their 2016 estimate of 222 million units to reflect this, and project 235 million units for 2017 (up 6 percent year-over-year).

Is This The End?

The experts pointed out that, while the near-term pressures are undeniable, they think “several factors are important when assessing the outlook for the iPhone business.” First off, based upon the firm’s installed base analysis, the analysts believe that the iPhone installed base will surge to 615 million over time, “driven by its recent expansion (24% in the past year).”

Second, new installment plans should drive higher units over the long-term. Third, the experts concluded, “that Apple's recent capex guidance and purchase obligations suggest our iOS units have 25% upside (providing further evidence that it will launch a 4-inch screen device).”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.