Apple Stock Downgraded: Jefferies Warns of Slowing Revenue Growth and Falling iPhone Demand

Jefferies analyst Edison Lee downgraded Apple Inc. (AAPL) stock to 'Underperform' from 'Hold' on Monday, citing concerns over slowing revenue growth, missed forecasts, and falling iPhone demand. The downgrade comes as Apple faces mounting pressure to maintain its market share and revenue growth in the face of intense competition and changing market conditions.



The analyst warned that high market expectations for the iPhone 16 and 17 are unlikely to be met, as a lack of material new features and limited AI coverage mean that demand may not be as strong as anticipated. Lee also noted that the iPhone 16's AI features, such as Apple Intelligence, will not be available at launch and will be added gradually through software upgrades, which could further dampen demand. Additionally, the analyst expects Apple's advanced packaging roadmap for the iPhone to face delays, which could impact the company's AI outlook.



Apple's iPhone sales have been sluggish for several years, with consumers holding onto their devices for longer periods and the company struggling to provide compelling reasons for consumers to upgrade. The slowdown in iPhone demand can also be attributed to increased competition in China, where national brands are gaining ground, and a sluggish economy that is causing consumers to curb their spending. Apple's overall revenue regression stems largely from the longer periods consumers are holding on to their iPhones and the ongoing pressures on household budgets from still-abnormally high inflation.

To boost iPhone demand and revenue growth, Apple can consider several strategies:

1. Innovate in AI and Software Features: Apple needs to articulate a strong message about artificial intelligence and demonstrate how its AI features can differentiate it from competitors. By integrating AI more deeply into its products, Apple can create a compelling value proposition for consumers.
2. Address the China Market: Apple should focus on regaining market share in China, where it has been facing intense competition from local brands. To do this, Apple can offer more competitive pricing or discounts to attract price-sensitive consumers in China, tailor its products and marketing strategies to better suit the preferences of Chinese consumers, and strengthen its supply chain and logistics in China to ensure timely delivery and better customer support.
3. Improve Hardware and Design: While Apple has been focusing on software and AI features, it should also consider improving the hardware and design of its iPhones to better compete with rivals. For example, Apple can introduce new form factors or sizes to cater to a wider range of consumer preferences and enhance camera quality and features to stay ahead of competitors.
4. Leverage Services and Ecosystem: Apple can further monetize its services and ecosystem to drive revenue growth by offering more value-added services, such as Apple TV+, Apple Music, and iCloud, to attract and retain customers, and expanding its ecosystem by integrating more third-party services and apps into the iOS platform.
5. Invest in Marketing and Branding: Apple should invest more in marketing and branding efforts to create buzz and excitement around its products. This can include hosting more launch events and product showcases to generate media coverage and consumer interest, and leveraging social media and influencer partnerships to reach a broader audience.

By implementing these strategies, Apple can boost iPhone demand and revenue growth in the face of intense competition and changing market conditions. However, the company must act swiftly to address the underlying issues of loyalty, upgrade cycles, and competition in China to reverse the trend of sluggish iPhone sales and maintain its market share.

Important note: Investors are reminded to do their own due diligence and not rely on the information provided as financial advice. The rating is also not intended to time a specific entry/exit at the point of writing unless otherwise specified.