Apple Stock Sinks Amid Concerns Over Sales of iPhone 16

Apple stock is trading lower today amid concerns that the initial sales of its iPhone 16 which would later be equipped with the company’s flagship Apple Intelligence might not be as strong as the iPhone 15.

Ming-Chi Kuo who is a leading Apple analyst said in his note, that based on his analysis “iPhone 16 series first-weekend pre-order sales are estimated at about 37 million units, down about 12.7% YoY from last year’s iPhone 15 series first-weekend sales.” He blamed the slowdown on the weak demand for the iPhone 16 Pro.

Ming-Chi Kuo Is Circumspect on Sales Outlook for iPhone 16

Notably, Apple launched the model last week and many analysts see the model, which would be the first artificial intelligence (AI) enabled smartphone from the company, as a key driver of its growth.

However, contrary to what many believed, Kuo is pessimistic about the model’s near-term outlook. “The delivery times of the iPhone 16 Pro series are significantly shorter than those of the 15 Pro series. In addition to the shipment increase before the pre-order, the key is that demand is lower than expected, as evidenced by the YoY decline in first-weekend sales,” he said in his note.

He listed the unavailability of Apple Intelligence and higher competition in China for weak initial sales. Notably, Apple will release the Apple Intelligence features next month and it might still not be available in China and Europe – two of its biggest markets outside the US – due to regulatory issues.

Apple Could Still Make Up During Holiday Season

Kuo believes that iPhone 16 sales could still improve in the holiday season. “Apple still has opportunities to improve sales through the release of Apple Intelligence and peak season promotions (year-end holiday season in America and Europe and Double 11 in China). These factors will be key points to watch for changes in iPhone demand,” he said in his note.

Citi analyst Atik Malik, who previously replaced Nvidia with Apple as his top AI pick, also sounded a cautious note and said, the question investors are asking is “Will new iPhones have lower margins given no increase in [average selling prices] and differentiation between Pro and non-Pro models isn’t as big?”

Barclays also sounds cautious and said, “Based on our conversations with distributors and analysis of pre-order figures on major Chinese e-commerce sites, total pre-order units were down Y/Y within the first couple of days, with a lower pro model mix.”

Meanwhile, not everybody believes that the iPhone’s initial sales would be weak. JPMorgan reiterated Apple stock as overweight and said, “However, mix continues to be favorable towards Pro models, particularly the Pro Max, with lead times already extended relative to base and Plus models.”

iPhone 16 Was Expected to Be a Key Growth Driver

iPhone revenues have sagged in recent quarters and sales fell 1% YoY to $39.3 billion in the most recent quarter even as the metric was ahead of the $38.8 billion that analysts were modeling. Also, the revenues were higher YoY on a constant currency basis.

Many analysts believe that the iPhone 16 could trigger a massive replacement cycle for Apple, similar to the 5G upgrade cycle.

Apple is also quite upbeat about its Apple Intelligence and during the fiscal Q3 2024 earnings call last month, CEO Tim Cook said, “We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers’ lives. We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential.”

Meanwhile, Apple seems to be facing pricing pressures and kept the initial pricing for the iPhone 16 similar to the iPhone 15. It has also lowered prices in markets like India and Australia in a bid to spur sales.

Fund Managers Have Been Selling Apple Shares

Several prominent fund managers have sold Apple shares this year. In Q2 2024, Warren Buffett sold nearly half of Apple shares in the quarter – a company he has praised many times and even termed his previous round of selling as a “mistake.”

At Berkshire Hathaway’s annual meeting in May, Buffett said that he was selling Apple shares over tax considerations. “It doesn’t bother me in the least to write that check and I would really hope with all that America’s done for all of you, it shouldn’t bother you that we do it and if I’m doing it at 21% this year and we’re doing it a little higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year,” said Buffett at this year’s shareholder meeting.

More recently, Bridgewater Associates which is the biggest hedge fund globally, sold Apple shares.