AP
Apple CEO Tim Cook.
- Goldman Sachs issued an unusually bearish note on Apple stock.
- The analysts believe that Apple may have "miscalculated" when setting the price for the $750 iPhone XR.
- The note also warns that Apple may be losing its power to price its products higher than its competitors.
- Apple's share price has declined over 20% and has lost over $220 billion in market value from its October peak.
Goldman Sachs cut its target price for Apple for the second time this month as the stock has taken a beating since it reported earnings on November 1.
Apple's share price has declined over 20% and has lost over $220 billion in market value from its October peak.
In the bearish note, Rod Hall and his analyst team say that it seems like Apple "miscalculated on the price/feature balance for the [iPhone] XR" and that Apple's less-expensive premium phone may have missed the mark.
"In addition to weakness in demand for Apple's products in China and other emerging markets it also looks like the balance of price and features in the iPhone XR may not have been well-received by users outside of the US," the analysts write.
"Historically, a disproportionately large chunk of December quarter demand tends to come in the two-week period beginning a week before Christmas day so it is possible that things change though we do not believe this is likely," the analysts continued, also adding that Chinese demand weakness and a strong dollar may have been additional challenges for the company to deal with.
But the analysts do not see many positive signs for Apple in the note, which comes a week after Goldman Sachs first sounded the alarm on Apple, and wrote that "end demand for new iPhone models is deteriorating."
Now, Goldman warns that Apple could be losing its shine - and its power to price its smartphones higher than the competition.
"Apple's success with iPhone X demand this summer and then a relatively healthy start to the XS cycle this fall suggested to us that pricing power was still intact. However, the laboratory of the market now points to Apple being at the limit of their price premium for the iPhone. In our experience with mobile phones, when pricing power is lost, consumer technology companies tend to either lose margins or market share or both."
They also add that investors may be overvaluing Apple's famous ecosystem, which keeps users buying new Apple products when their old ones wear out, because of a United States-focus.
"We do not believe the rest of the world is as committed to Apple's product ecosystem, so switching costs outside the US tend to be lower," the analysts wrote.
Tuesday's note is the latest evidence that analysts are now worried iPhone unit sales are going to start shrinking in the short-term, which is believed to be the reason why Apple decided to stop reporting unit sales, which analysts relied on as a key metric. Apple said it preferred to focus on its transition to a services company, with regular recurring revenue.
The analysts believe that Apple's December quarter revenue will fall on the lower end of its guidance, and cut its price target to $182. Earlier this month, the same analysts cut their Apple target price from $222 to $209.
Get the latest Goldman Sachs stock price here.