Technology giant Apple Inc (NASDAQ: AAPL) faces concerns over growth in China that have sent shares down since reporting first-quarter financial results.
A leading analyst highlights the China headwind in a new note, with potential good news coming.
The Apple Analyst: Wedbush analyst Daniel Ives has a Buy rating on Apple and $250 price target.
The Analyst Takeaways: Apple faces one of the toughest demand environments in China over the last five years, according to Ives.
The weak demand could continue in the current quarter.
"For the March quarter China iPhone units will likely be down moderately again YoY as this remains a major growth drag on the overall growth story for Apple in the near-term," Ives said.
The analyst said geopolitical tensions, a soft China economy and market share gains from rival Huawei could all contribute to weakness for Apple in the second quarter.
"China headwinds remain the black cloud over Cupertino."
Ives highlights potential good news in a new analyst note.
"Based on our recent Wedbush Asia trip in early April data points in the supply chain are supporting that Apple iPhone builds have held steady with initial projections from the beginning of the year."
Ives said this may not be a "positive result," but shows that results could be better than feared.
"We believe while China has clearly performed below expectations, other regions including the US, Europe, and India we believe have been relatively strong in the March quarter and will help balance out a soft China number."
Ives said Apple needs to turn the China headwind into a tailwind by the release of the iPhone 16 in the fall.
"It all starts with reaffirming Apple's presence in China."
Ives said a visit to China by Apple CEO Tim Cook was important as around 20% of iPhone sales come from the China region.
"In essence Apple needs China and China needs Apple despite all the noise."
Despite the headwind, Ives remains bullish on Apple based on factors that include 2024 iPhone estimates "hittable," pent-up demand for iPhone 16, double digit growth of Services segment, artificial intelligence plans could take center stage at WWDC and an installed base of 2.2 iOS devices worldwide.
"The Street is bracing for a brutal March quarter and soft June guidance which we believe could be the last few quarters of this growth storm as Apple starts to see a renaissance of growth heading into the September quarter and FY25."
AAPL Price Action: Apple shares trade at $168.77 on Tuesday, versus a 52-week trading range of $159.78 to $199.62. Apple shares are up 4.0% over the last year, but down 12.5% year-to-date in 2024.