Shares of Apple (NASDAQ:AAPL) fell about 1% premarket on Friday after Jefferies downgraded the stock to Underperform from Hold citing excessive expectations on iPhones and foldable phones.
The firm decreased the price target on the stock to $205.16 from $205.82.
“Better demand for iPhone 17, partly due to a price cut on the base model, is already in the price. That has led to excessive expectations on 18 Fold, and the replacement cycle,” said analysts led by Edison Lee.
The analysts noted that demand for iPhone 17 started out only lukewarm, but has grown over time. As of today, iPhone 17 Pro Max’s resale prices are still at a premium of 5% to 15% for all variants, versus only one variant trading at a premium last year.
The analysts said they attribute the better demand to — no price hike for Pro/Pro Max and an effective price cut for the base; and high trade-in value for 15/16.
Lee and his team noted that they see strong China demand likely driven by — deeper price cut at the base model than outside China, with the 256GB variant qualified for governement subsidy of RMB 500; and highest trade-in value offered for iPhone 15/16 among major markets.
The analysts said that another potential reason for higher year-over-year lead time and resale premium could be the early production start last year, which led to less shortage than this year.
“As we expected, 17 Air is the least popular by our tracking. This new form factor has not helped AAPL driven iPhone sales,” said the analysts.
The analysts added that more positive sales momentum has inflated expectations on the replacement cycle and prospects of the 18 Fold.
The big debates seem to be around — speed of replacement cycle; and upside for foldable, according to the analysts.
“Without innovative features, price-driven replacement cycle may not be sustainable (could result in margin pressure). The thin form factor is fact is not popular, making any bullish view on fordable risky. We do not doubt AAPL will be able to make the most beautiful foldable phone in the market, but the question is the TAM of a US$2K phone,” said Lee and his team.
The analysts noted that the most important component of the fordable — the display — comes from Samsung. Samsung’s recently launched Galaxy Z Fold 7 has a display that is nearly crease-free, and its thickness (unfolded) at 4.2mm is even thinner than the 17 Air at 5.5mm. Its selling price is U.S. $2,000.
“Review and reception seems strong, but even so industry expectations for its annual vol is no more than 3m units (Fold 6’s vol is 2.2m). Therefore, we believe it is the price point that limits the TAM, not the form factor,” said Lee and his team.