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Apple Nudges Lower After Rare 'Sell' Rating From New Street Research

New Street Research analyst Pierre Ferragu joins only one other analyst on Wall Street in questioning the near-term prospects of the world's most valuable tech company.

Apple Inc.  (AAPL)  shares nudged higher Friday following the release of a rare "sell' rating from a Wall Street analyst that challenges the iPhone 'supercycle' thesis of the world's most valuable tech company.

New Street Research analyst Pierre Ferragu slashed his price target on Apple by 28%, to $90 a share, and lowered his rating to "sell", from "neutral", joining only one other analyst -- and none of the major investment banks -- in questioning the group's near-term prospects.

Ferragu argues Apple's iPhone 12 sales, boosted by bets on 5G network expansions around the world, are unsustainable and could slow significantly into the second half of the calendar year. He also thinks the next line-up of iPhones will lack the innovation need to entice new customers and upgrades while pegging his 2022 financial year shipment forecasts in the range of 180 million to 200 million, around 20% below the Street consensus at the midpoint. 

"Most affluent consumers did not see their earnings power much affected by the pandemic, but they saw their spending opportunities shrink. High-end consumer electronics benefited as a result," Ferrau said. "The iPhone is the best illustration of this, driving close to record shipments in FY21, implying the iPhone 12 is the second best-ever received iPhone, after the iPhone 6."

"The key question is how things shape up for next year, as the current super-cycle has brought forward demand, the next iPhone line up is likely a “12S” type with limited innovation, and consumers spend less on consumer electronics as the economy re-opens," he added.  

Apple shares were marked 0.4% lower in early trading Friday to change hands at $124.77 each, a move that would extend the stock's year-to-date decline to around 6%.

Apple CFO Luca Maestri told investors in late April that Apple is likely to experience a "steeper than usual" sequential revenue decline thanks in part to supply constraints linked to the global semiconductor shortage following Street-blasting sales of nearly $90 billion for the three months ending in March.

Apple said iPhone revenues rose 65% from last year to $47.94 billion, well ahead of the $41.7 billion Street forecast, thanks to what CEO Tim Cook called "strong demand for the iPhone 12 family".

Greater China revenues, Apple said, rose 88% from last year's pandemic trough to $17.728 billion, while overall services revenues rose 26.6% to $16.9 billion.

Earlier this month, however, Lumentum Holdings  (LITE) , which supplies laser components for Apple iPhone's facial recognition system, posted weaker-than-expected third quarter revenues and deferred $15 billion in sales linked to 5G deployment delays in China.