Goldman Sachs downgrades Apple for 2nd time this month, warns Apple may have 'miscalculated' iPhone XR pricing strategy

Drew Angerer/ Getty ImagesTim Cook
  • Goldman Sachs has issued an unusually bearish note on Apple stock.
  • The analysts think Apple may have “miscalculated” when setting the price for the $US750 iPhone XR.
  • The note also warns that Apple may be losing its power to price its products higher than its competitors’.
  • Apple’s share price has declined over 20% and has lost over $US220 billion in market value from its October peak.

Goldman Sachs has cut its target price for Apple for the second time this month as the stock has taken a beating since the company reported earnings on November 1.

Apple’s share price has declined over 20% from its October peak, costing the company over $US220 billion in market value.

In the bearish note, Rod Hall and his analyst team said that it seemed as if Apple “miscalculated on the price/feature balance” for the new iPhone XR and that Apple’s less-expensive premium phone might have missed the mark.

“In addition to weakness in demand for Apple’s products in China and other emerging markets it also looks like the balance of price and features in the iPhone XR may not have been well-received by users outside of the US,” the analysts wrote.

“Historically, a disproportionately large chunk of December quarter demand tends to come in the two-week period beginning a week before Christmas day so it is possible that things change though we do not believe this is likely,” the analysts continued, also adding that Chinese demand weakness and a strong dollar might be additional challenges for the company to deal with.

Goldman Sachs first sounded the alarm on Apple one week ago, writing that “end demand for new iPhone models is deteriorating.”

Now, Goldman warns that Apple could be losing its shine – and its power to price its smartphones higher than the competition’s:

“Apple’s success with iPhone X demand this summer and then a relatively healthy start to the XS cycle this fall suggested to us that pricing power was still intact. However, the laboratory of the market now points to Apple being at the limit of their price premium for the iPhone. In our experience with mobile phones, when pricing power is lost, consumer technology companies tend to either lose margins or market share or both.”

They also added that investors might be overvaluing Apple’s ecosystem, which is designed to keep users buying new Apple products when their old ones wear out, because of a United States-focus.

“We do not believe the rest of the world is as committed to Apple’s product ecosystem, so switching costs outside the US tend to be lower,” the analysts wrote.

Tuesday’s note is the latest evidence that analysts are worried iPhone unit sales will start shrinking in the short term. Such concerns are thought to be why Apple decided to stop reporting unit sales, which analysts relied on as a key metric. Apple said it preferred to focus on its transition to a services company, with regular recurring revenue.

The analysts believe that Apple’s December quarter revenue will fall on the lower end of its guidance, and the firm cut its price target to $US182. Earlier this month, the same analysts cut their Apple target price to $US209 from $US222.

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