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Apple is reducing orders for key products in the face of weakening demand - here's why analysts are still bullish on the company


Until recently, Apple managed to avoid most of the fallout from rising interest rates and high inflation that drove so many of its Big Tech peers to the crater in 2022. But over the past month, delays production and fears that demand for tech products will fade as the weakening global economy sent shares of the company down nearly 15%.

And this week, investors got more evidence of slowing demand when Apple told its suppliers to make fewer components for key products including Macs, iPads and AirPods, Nikkei First reported. Asia, citing sources at technology component suppliers.

Apple did not immediately respond to Fortune’s request for comment on any slowdown.

Wedbush technology analyst Dan Ives, who has long been an Apple bull, said in a Wednesday note that Apple’s slower production reflected a “softer consumer backdrop” and concerns in application material were now a “clear surplus” for the title. And CFRA Research technology analyst Angelo Zino said in a Tuesday note that he was not “shocked” by news that Apple was slowing its component orders as the company dealt with an environment “more difficult”.

But despite demand issues and a potential recession, Ives and Zino remain optimistic about Apple’s long-term prospects, arguing that the company’s cash flow remains stable, it has a “management team who rarely makes mistakes” and that it offers growth potential in key areas. areas such as augmented reality.

With tech stocks ‘remaining enemy number one on the street’ as rising interest rates make it more expensive to invest in future growth, Ives still believes Apple is a long-term investment. winner, as do many Wall Street analysts.

Still bullish

Apple’s 12-month average price target on the street is just over $176, which represents a potential upside of nearly 40%, according to data from TipRanks. But worries about the global economy have led many analysts to lower their price targets for Apple shares in recent weeks.

Even Ives cut his price target from $200 a share to $175 on Wednesday, citing “an uncertain environment” that caused “demand headwinds.”

The tech bull said Apple may be forced to cut back on iPhone orders in coming quarters, but he still believes the company remains a “name of the Rock of Gibraltar” for investors and the latest downturn in the demand is only a short-term problem.

“Apple remains our preferred technology name and we maintain our outperform rating,” he wrote.

Apple’s demand problem is a relatively new development. Just a few months ago, the closures of key factories in China of Apple’s largest iPhone supplier, Foxconn, led to production problems, leaving the company with millions fewer iPhones than it should. she needed for her clients.

Ives noted that Apple was unable to meet demand for 8-10 million iPhones in the December quarter due to these shutdowns and other supply chain issues, and said argues that those sales would likely shift to 2023.

“We believe the overall demand environment is more resilient than the street is anticipating, and so we believe there is a tremendous amount of bad news ahead,” he wrote.

Zino also noted that Apple has always cut back on hardware purchases after the holidays, so the latest order downturn could be more seasonal in nature.

He added that COVID supply constraints have been “largely resolved” but that Apple’s stock could drop further in the near term as earnings estimates will likely need to be revised down in the first quarter due to of the weakening of the economy.

Still, Zino believes Apple shares will be at $165 by the end of the year, a jump of about 30% from Wednesday’s levels. He notes that the company produces more than $100 billion in annual free cash flow — or cash available to pay creditors, dividends and interest — which provides it with stable income to weather any potential recession.

“Investors should seize this opportunity,” he wrote.

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