They laughed last August at a $165 target on Apple

With Apple at $160, nobody’s laughing now at New Street’s Pierre Ferragu.

From his “Year in Review and Manifesto for 2019,” which landed on my desktop Thursday:

We based our controversial (lone rider with a negative rating since August 20th) call on two convictions: 1) The iPhone X had pulled forward demand in 2018 (exhibit 5-6), and 2) iPhone shipments are on a structural declining trend as replacement cycles elongate and the first-hand installed base doesn’t grow anymore (exhibit 7). Since we downgraded the stock, we have been swamped with datapoints which show that our thesis playing out (exhibit 8).

Here again our model played in full swing:

Resources—we gathered very detailed information spanning over 10 years to understand how Apple shipments by SKU got affected by the introduction of premium models. We combined two data sources with feedback from our own local partners walking around China to gather useful supply chain datapoints.

Technology Infrastructure—the main insights of the call each come from our experience of other segments: our research on Intel got us to understand the secular decline of the PC market between 2012 and 2017, and see similar trends at work for the iPhone (exhibit 9). Our experience in Data Networking and Cybersecurity reminded us how product cycles can hide underlying trends. Adjusting reported numbers for product cycle is an art that proved useful for Apple this year.

A couple of those exhibits:

Click to enlarge.

See also: Look who put a ‘sell’ on Apple Monday

My take: Ferragu has buried the lede. He’s expecting a second quarter guide “well below expectations,” with iPhone revenues at $33.6 billion vs. consensus $40.2 billion.