Investing.com - Apple (NASDAQ:AAPL) is becoming more likely to deliver lower-than-anticipated financial guidance for its fiscal second quarter when it reveals its latest earnings later this month, according to analysts at Morgan Stanley (NYSE:MS).
The tech giant has been grappling with sluggish demand for its iPhone in China, where competition from local players like Huawei has been fierce. Sales of Apple’s flagship handset slumped by 18.2% during the December quarter in the country, the world’s biggest smartphone market and the company’s second-largest region after the US, Bloomberg News has reported, citing a Counterpoint Research study.
Globally, iPhone sales slipped by 5% during the critical holiday shopping period, Bloomberg said, suggesting a somewhat uneven customer reaction to its latest artificial intelligence-enhanced models of the device. A key issue for Apple has reportedly been the limited availability of its new AI features in China, where the firm has yet to finalize partnerships with domestic tech players such as Baidu (NASDAQ:BIDU) and Tencent (F:NNND) to support on-device and cloud AI infrastructure.
Meanwhile, several brokerages have unveiled ratings downgrades of the stock, which has fallen by 8% so far this year and 12% over the past one-month period.
In a note to clients, the Morgan Stanley analysts led by Erik Woodring predicted that Apple’s quarterly results will show that iPhone demand "remains muted". While the December quarter earnings are tipped to meet estimates, they project that Apple’s outlook for its March quarter will be 4%-6% below consensus forecasts.
A quarterly "guide-down" has been "well-telegraphed at this point", the analysts said, noting that they are taking a "relatively cautious view" on second-quarter iPhone sales. They added that while the outlook could underpin a reset of Apple’s full-year estimates, they do not expect the guidance to spark a "clearing event" for the group’s shares.
"[W]hile we remain bullish on several aspects of the Apple story that underpin our [overweight] rating and $273 price target -- the potential for growth to inflect in [fiscal year 2026], persistently strong gross margins, consistent double-digit Services [division] growth, and expectations for continued installed base growth -- and believe $210-$220 is likely a floor in the stock, we just don’t believe there is a tactically bullish call to make around earnings," the analysts wrote.
Apple is expected to release its fiscal first quarter earnings after the closing bell on Wall Street on January 30.