- The worst of Apple's iPhone weakness - a theme that's dominated investors' concerns and weighed heavily on its stock - is now behind investors, according to a new report from UBS.
- The firm's examination of Asia's hardware supply chain shows inventory has begun clearing in China, analyst Timothy Arcuri said.
- Apple warned investors earlier this year that its quarterly revenue would come in lower than previously expected to due to soft iPhone sales in China.
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Apple investors should find some comfort in UBS analyst Timothy Arcuri's latest assessment of the company's woes.
The Apple bull told clients Wednesday that the worst of the slowdown experienced from its flagship product was in the rear-view mirror. The problem has weighed on Apple's stock price and has for months dominated Wall Street dialogue on the company.
Arcuri drew on the firm's updated analysis of its hardware supply chain in Asia, which showed signs of iPhone inventory beginning to clear in China. The region has been a major pain point for Apple, particularly since China's iPhone weakness led CEO Tim Cook to issue a rare quarterly sales warning earlier this year.
"While March mix is still bad, the tone in the supply chain is starting to improve and price reductions in China may be starting to clear channel inventory," Arcuri wrote. "Procurement estimates for XR are actually now up Q/Q in June - atypical for this late in a 'new' model cycle (good near-term for QRVO), but reflective of inventory burn."
The build in iPhone inventory for the first-quarter appeared unchanged from the firm's prior estimates, at around 40 million units - with a rise in iPhone 8+ models and older entirely offsetting a drop in newer models, Arcuri wrote.
That trend has led to a lower average selling price, causing UBS to drop its March sales and earnings estimates from $57.5 billion and $2.40 a share to $56.5 billion and $2.33 a share, respectively.
The assessment stands in contrast to the outlook from analysts at HSBC, who have repeatedly warned investors about slowing Apple sales in the region. The firm found wealthy consumers in China have shifted away from iPhones and toward other brands of smartphones, like Huawei and Samsung.
As far as the stock's valuation goes, Arcuri noted that Apple shares have become historically cheap relative to the broader market.
Apple is now trading at an 18% discount on a relative basis to the broader market's forward price-to-earnings ratio - well below Apple's 10-year average of an 8% discount. However, on an absolute basis, Apple is trading roughly in-line with its historical average, at 14 times its forward earnings.
Meanwhile, Arcuri said potential risks to his optimistic view lie in macroeconomic weakness dampening product demand in China, along with a decline in "innovative offerings."
Apple shares were trading 26% below their record high set last October. Thy're up 20% this year.
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