- Morgan Stanley is very bullish on Apple because of positive signs for iPhone sales in China.
- However, a report from the country Wednesday points to a discounted iPhone X as a sign of sluggish smartphone demand.
Apple's iPhone X is a hit in China, Morgan Stanley analysts wrote in a note distributed to clients on Wednesday.
In China, Apple is able to get Android users to switch to iPhones, and is able to retain its current users when they upgrade, analyst Katy Huberty wrote, citing Morgan Stanley's proprietary AlphaWise data.
"We believe strength of iPhone X and discounted older model iPhones in China are most misunderstood by investors and help explain our out of consensus bullish view," the analysts wrote.
They predict that Apple will generate $307 billion in revenue in fiscal 2018, which would be significantly higher than the company's $229.2 billion in sales in 2017, and is 12% above the Street's consensus, according to Morgan Stanley.
"Data through the 4 week period ending December 17th shows that Apple continues to gain share of the active base of smartphones in China (counter to the consensus view that Apple is losing share), capturing 21.3% market share, 250 basis points higher than their closest competitor," Huberty wrote.
"Given these strong and accelerating data points for the iPhone, and iPhone X in particular, we remain confident in our thesis that Apple is turning the corner in China and growth will accelerate in the quarters to come," she continued.
Apple released the iPhone X in September with a higher starting price than any other smartphone, thanks to its new design. Given that China is Apple's second-biggest market, adoption of Apple's flagship product in China is being closely watched by investors and analysts.
Morgan Stanley gives Apple an "overweight" rating and a $200 price target.
Not all signs point up
However, Morgan Stanley acknowledges that its bullish outlook on Apple is out of step with other Wall Street analysts, which have been increasingly bearish on Apple stock, mostly based on tea leaves from component suppliers that Apple buys parts from.
Credit Suisse analysts on Monday wrote that they believe that iPhone X production has been slashed to 25 million units from a previous target of 31 million units in the March quarter. Zhang Bin of Sinolink Securities said "after the first wave of demand has been fulfilled, the market now worries that the high price of the iPhone X may weaken demand in the first quarter."
However, Credit Suisse still believes that Apple is making more new iPhones now that it did in 2015, Apple's previous "super-cycle" of iPhone sales.
The customers who bought a new phone in 2015 may be getting ready to upgrade, a theory analysts call the "super-cycle."
There's also worry about China's overall smartphone market, which has seen demand cool off as it's become more saturated. Smartphone shipments declined 10% in the first 11 months of last year, China's Ministry of Industry and Internet Technology said, according to Caixin.
In fact, Caixin reports, some iPhone X models have been discounted off list price on JD.com, a massive online retailer and official Apple retail partner, a signal of sluggish demand for new phones in China.
