J.P. Morgan analyst Samik Chatterjee has lowered earnings estimates for Apple (NASDAQ:AAPL) with the lowered revenue growth projection for iPhone (led by iPhone SE) and Services.
The analyst notes that the overall reduction in earnings estimates is fairly modest and brings J.P. Morgan mostly in line with the consensus for FY2022. Chatterjee cut the street-high iPhone volume outlook for CY22 to 245 million from 250 million. This is mostly led by the reduction in estimates for iPhone SE3, from 30 million to 24 million.
Our estimates for iPhone 13 remain largely intact as we expect the combination of recent color variant launches, as well as a higher than typical inventory level in the channel against the backdrop of existing supply chain constraints to provide offsets to lower customer spending, Chatterjee said in a client note.
Chatterjee's actions come after the bank removed Apple from its Analyst Focus List amid a more cautious view on the consumer spending outlook, led by lowered growth forecasts for the smartphone market.
We remain above consensus expectations for FY23 and FY24, led by our forecasts for better than expected growth in Products as well as margin and earnings trajectory on the back of robust growth in Services. Our positive view on the shares, long term, leads us to maintain our Overweight rating, Chatterjee added.
The analyst notes a slowing services momentum against tough comparables.
Gross app store revenue, new downloads, as well as gaming revenue, worsened in relation to y/y growth trends in C1Q22, which while partly on account of tough comparables is also the first q/q sequential moderation in gross revenue since C4Q19. We expect the slower engagement on the App Store to limit Services revenue growth in the +15%-20% y/y range in FY22 and thus we lower our estimates on our expectations for more modest sequential growth in Service revenues through the fiscal year.
Still, J.P. Morgan remains bullish on Apple as the company is well-positioned to deliver resilient performance in product revenue growth, led by share gains of hardware products.