Goldman Sachs to Apple (AAPL. US) "Neutral" rating, with a target price of $142. Analyst Rod Hall expects Apple to post decent Q1 results, but the growth prospects for the iPhone and services business are worrying.
Hall believes that the Q1 earnings report will announce positive iPhone results, even better than market expectations. The analyst said Apple has done better than planned to deal with supply constraints, and "demand for the iPhone and broader products is likely to remain stable in the first quarter." ”
Still, Hall noted that the data shows that iPhone sales in the Chinese market fell 18 percent in December. In addition, he also pointed out that U.S. consumer spending fell 3.1% year-on-year in December, which could also mean that Apple's sales in the final month of the quarter were weak.
Separately, Apple's fiscal first quarter ends Dec. 25, 2021, and Hall notes that this could push "high demand after Christmas to fiscal second quarter." However, this is not a big problem. While that means the iPhone lost some sales in the Q1 earnings report, those sales will resurface in the second quarter, which could give Apple reason to make a strong forecast for the next quarter.
Hall is more concerned about the health of Apple's services business. He said that Apple's service revenue in 2021 increased by 27% year-on-year, above the trend level of 16%. Hall expects services revenue to return to growth of 16 percent in the first quarter of 2022. Worryingly, the analyst expects service revenue growth to continue to slow over time.
Overall, Hall sees only 8% growth in services revenue in fiscal 2022.
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