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Why Did New Street Research Downgrade Apple?

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New Street Research: The iPhone is too popular

New Street Research downgraded Apple (AAPL) stock to “sell” from “hold,” as it believes that the iPhone X is too popular. The firm believes this could negatively impact the upgrade cycle. A few months ago, several analysts were expecting demand for the iPhone X to be soft.

New Street Research’s Pierre Ferragu stated, “We expect a material disappointment in 2019.” Ferragu continued, “The iPhone X has been very successful and well received by consumers. It has been so successful, that we think it has brought forward demand.”

Ferragu has a 12-month price target of $165 for Apple, down from its previous estimates of $170 and 21% below the current price of $215.

There are also reports that local telecom carriers in Japan may have to stop bundling smartphones with monthly service fees that could impact iPhone sales. Users choose to purchase cheaper Android phones (GOOG)(GOOGL) if they need to pay for a smartphone up front.

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Strong iPhone performance in fiscal Q3 2018

Apple’s (AAPL) iPhone sales in the fiscal third quarter rose 20.0% YoY (year-over-year) to $29.9 billion, up from $24.84 billion in the fiscal third quarter of 2017. It sold 41.3 million units, a 1.0% increase YoY compared to 41.0 million units. The iPhone accounted for 57.0% of Apple’s total revenues in the fiscal third quarter.

The iPhone was a key revenue driver for the company in the third quarter. The iPhone X was the most popular iPhone in the June quarter, with a customer satisfaction score of 98.0%. Research firm IDC (International Data Corp.) claimed that the iPhone gained market share in the United States, China (FXI), Germany (EWG), Mexico, and Russia.

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