Morgan Stanley Left Unimpressed By Apple’s Production Shift From China To Vietnam and India
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Investment bank Morgan Stanley was left unimpressed by Apple’s latest earnings results, which saw the firm beat analysts’ revenue and EPS estimates for its second fiscal quarter. Apple reported $95.4 billion in revenue and $1.65 in earnings per share. However, the stock fell by 4% in aftermarket trading as the firm remained unclear about the impact of tariffs on its business, efforts to shift production from China, the future of the Services business and its plan to roll out upgrades to its Siri software. Morgan Stanley reiterated its Overweight rating on Apple’s shares and stuck to its $235 share price target.
Apple’s Lack Of Segment Level Guidance & Broader Tariff Impact During Earnings Leaves Morgan Stanley Mixed-Minded About Stock
Morgan Stanley’s sentiments about Apple’s latest quarter were divided along the lines of being impressed by the firm’s short-term outlook and yearning for more when it came to the longer term. Analyst Erik Woodring kept an Overweight rating on Apple’s shares and a $235 share price target as he commented on Apple’s iPhone growth, China revenue, China smartphone market share and demand stability in the previous and current quarters.
Woodring noted that the “fact that Apple only faces $900M of tariff costs in the June Q, despite being over-indexed to China” implies that the firm’s strategy to diversify production from China to other Southeast Asian nations is working. Apple’s primary contract manufacturer Foxconn, has been diversifying production to Vietnam before President Trump’s tariffs, and since the tariffs, multiple reports have claimed that the firm is seeking to produce more iPhones in India and in Brazil.
However, while the analyst did appreciate Apple’s short-term guidance and quarterly results, he was left unimpressed by other factors. According to him, these include no segment-level guidance for the current quarter, particularly for the Services segment, provided every quarter, according to Morgan Stanley.
The bank was also left wondering about the specifics of Apple’s strategy to shift its production from China. Apple “couldn’t commit to how much Product would come from India/Vietnam in the September quarter and beyond,” said Woodring. This lack of commitment means that the long-term tariff impacts on the firm’s sales are left unclear. Apple also didn’t address pricing or other tariff mitigation tools, and didn’t provide an updated timeline for the new Siri introduction,” Woodring added.
Apple’s sales in Greater China, a region that includes Taiwan, Hong Kong and Mainland China, fell to $16 billion. The firm attributed the drop to currency headwinds, with CEO Tim Cook sharing in an interview later that tariffs have so far not seen advance buying for the iPhone. Advance buying is referred to as order pull-through, and it artificially inflates current revenue figures to negatively impact revenue in future periods.
