Apple Inc (NASDAQ:AAPL, ETR:APC) is doubling down on its China strategy at a key moment for the iPhone maker with CEO Tim Cook's visit, analysts at Wedbush believe.
“The narrative around Apple and [CEO Tim] Cook over the past year has been around diversifying the supply chain outside of China with geopolitical tensions the black cloud over [Apple headquarters] Cupertino,” they wrote.
“To the contrary, we have discussed that Apple is actually increasing its investments and retail footprint in China over the past year and to this point, Cook has been in China since last week on an important visit to lay the groundwork for Apple’s future in China.”
Apple CEO Tim Cook on Thursday opened the company’s newest flagship store in Shanghai. He has also met with key suppliers and is attending the China Development Forum in Beijing, which kicked off on Sunday.
The analysts noted Apple has seen softer iPhone sales in China stemming from a ban on iPhones by some Chinese agencies, the domestic success of the new Huawei smartphone and a softer economic backdrop.
With about 20% of iPhone sales coming from China, they see turning this headwind into a tailwind going into the iPhone 16 release this fall as crucial.
“The timing of this trip was important as in essence Apple needs China and China needs Apple despite all the noise,” the analysts wrote.
“Clearly Beijing sees the writing on the wall as its heightened regulatory environment and general uncertainty has caused foreign investments to leave the country with this conference viewed as an olive branch to key companies like Apple that the tide will start to change.”
They pointed out that Apple is facing regulatory battles from all directions, including last week’s antitrust suit from the Department of Justice in the US and the EU taking more aggressive steps, but they remain optimistic.
Last week, the DOJ along with more than a dozen state governments accused Apple of monopolizing the smartphone market by pacing restrictions on app developers that stifle innovation. Apple is likely to appeal the suit.
“We have seen Apple's back against the wall before and we view this period as just another chapter in the Apple growth story with AI now on the doorstep of coming to Cupertino,” the Wedbush analysts believe.
They reiterated their ‘Outperform’ rating on the stock and $250 price target. Apple shares traded hands at about $171 on Monday afternoon.
Antitrust lawsuit impact unclear
Analysts at the Bank of America have also reiterated their ‘Buy’ rating on Apple on the multi-year phone upgrade cycle driven by Generative AI and continued tailwinds from the mix shift to services. They awarded it a $225 price target.
They wrote that it was hard for them to determine a revenue and earnings per share impact on Apple from the antitrust suit at this time.
“If allowing more access to Apple's hardware, software and operating system features results in better performing cross-platform apps and users find other smartphones equally usable and feature-rich for their needs, that might impact revenues,” they wrote.
“However, it remains unclear whether just enabling cross-platform apps, or allowing competing apps on the platform would lead to much user migration given users' preference for the brand, overall quality and usability of Apple products and integrated ecosystem.”