The World's Top Apple Analyst Issues a Sudden Warning!

Ming-Chi Kuo, an analyst from TF International Securities, has been dubbed the "World's Strongest Analyst" due to his consistent predictions about Apple's trends over the years, which have significantly impacted stock prices. This week, Ming-Chi Kuo unexpectedly issued a warning concerning Apple's latest flagship product, the iPhone 16. In a recent report, he stated that orders for the iPhone 16 are expected to decrease by approximately 10 million units between Q4 2024 and Q1 2025. Most of the reduced orders are for the iPhone 16 Pro version. Consequently, the estimated production of the iPhone 16 in the second half of 2024 has been adjusted to 84 million units (down from the previous estimate of 88 million units).

Ming-Chi Kuo also projects that production for Q1 2025 will be 45 million units and for Q2 2025 will be 39 million units, both lower than the 48 million and 41 million units for Q1 and Q2 of 2024, respectively.

Apple (NASDAQ: AAPL) saw its stock close over 2% lower this Wednesday, with an intraday drop exceeding 3%. The market attributes the decline, in part, to Ming-Chi Kuo's warning. Year-to-date, Apple's stock has risen by 20.31%, with a current market capitalization exceeding $3.5 trillion.

After the reduction in Apple's orders, the estimated total production of iPhones for Q4 2024, Q1 2025, and Q2 2025 is approximately 80 million, 45 million, and 39 million units, respectively, all showing a year-over-year decline (with Q4 2023 at 84 million, Q1 2024 at 48 million, and Q2 2024 at 41 million units).

Additionally, the mass production of the iPhone SE4 is set to begin in December 2024, with an estimated production of around 8.6 million units from late 2024 to Q1 2025. Apple's iPhone SE models are typically the most affordable in its lineup, but they are not updated on an annual basis.

Ming-Chi Kuo noted that Apple's iPhone revenue for Q4 might not fully reflect the impact of reduced orders because the gap between production and sales in Q4 2023 was larger compared to Q4 2024. However, the product mix in Q4 2024 is more favorable, with increased production of the iPhone Pro Max model from September to October. Nevertheless, due to the year-over-year decline in shipments and the launch of the SE4, leading to a less favorable product mix, iPhone revenue is expected to face pressure in the first half of 2025.

Most iPhone suppliers are expected to face pressure starting from the end of Q4 2024, with a more significant impact anticipated in the first half of 2025.

AI Monetization is Still a Long Way Off

Some market participants are optimistic that Apple Intelligence might soon significantly boost iPhone shipments. However, Apple's recent reduction in orders suggests that this optimistic expectation may not materialize in the short term. Ming-Chi Kuo believes that Apple's best chance for success in the AI space lies in device integration, expressing confidence in the long-term potential of Apple Intelligence as a popular paid service. Nevertheless, a substantial increase in iPhone shipments might require hardware innovations to harness the AI momentum.

Apple Intelligence is expected to be launched next week with the iOS 18.1 update as a testing feature for new users. The latest iPhone 16 and the 2024 iPhone 15 models both support Apple Intelligence. Reportedly, the new feature will allow users to summarize text messages and emails, and choose automatic replies for messages.Apple did not immediately respond to media requests for comment.

Apple Fined $25 Million

In addition to the decline in phone orders, Apple is facing other troubles.

This Wednesday, the U.S. Consumer Financial Protection Bureau (CFPB) ordered Apple and Goldman Sachs to pay over $89 million due to the improper handling of consumer disputes related to Apple Card transactions. Goldman Sachs was fined $45 million in civil penalties and ordered to pay $19.8 million in restitution, while Apple was fined $25 million. The bureau also prohibited Goldman Sachs from launching new credit cards unless it can present adequate plans to comply with the law.

CFPB Director Rohit Chopra stated, "Apple and Goldman Sachs illegally evaded their legal obligations to Apple Card borrowers. Big Tech companies and Wall Street giants should not act as if they are above federal laws."

The Apple Card was first introduced in 2019 as an alternative to traditional credit cards, relying on Apple's mobile payment and digital wallet service, Apple Pay. The company partnered with Goldman Sachs as the issuing bank and promoted the card as simpler and more transparent than other credit cards. In December of the same year, the two companies launched a new feature allowing users to finance certain Apple devices with interest-free monthly installments using the card.However, the Consumer Financial Protection Bureau found that Apple and Goldman Sachs misled consumers regarding the interest-free payment plans for Apple devices. Although many customers believed they would receive automatic interest-free monthly payments when using the Apple Card to purchase Apple devices, they were still charged interest. According to the CFPB, Goldman Sachs did not adequately communicate with consumers about how refunds would be handled, resulting in some customers paying additional interest fees.

Nick Carcaterra, Vice President of Communications at Goldman Sachs, told the media, "The Apple Card is one of the most consumer-friendly credit cards ever. We worked hard to address certain technical and operational challenges that arose after the launch and have worked with affected customers to resolve them. We are pleased to have reached a resolution with the CFPB and are proud to have developed such an innovative and award-winning product with Apple."

Apple stated that after becoming aware of these issues, it worked closely with Goldman Sachs to address them. An Apple spokesperson said, "While we strongly disagree with the CFPB’s characterization of Apple's conduct, we have reached an agreement with them. We look forward to continuing to provide an exceptional experience for our Apple Card customers."