Adding to Apple’s recent woes are mounting concerns that the looming exit of the U.K. from the E.U. will have a rather unfortunate effect on Apple’s bottom line.
Wall Street has already dialed down its expectations for iPhone sales when Apple announces its Q2 earnings on July 26 – and now Citigroup is warning weak iPhone sales may not be the total of Apple’s worries. Analyst Jim Suva and his team released a note earlier this week documenting their suspicions that Apple is about to miss Wall Street expectations by a wider than predicted margin. The cause identified is the Brexit in general, and the wild run of currency fluctuations it set off.
Citi lowered its revenue estimates for Apple to $41.2 billion for Q3 the previous estimate was $42.2 billion. Earnings per share were also reduced from $1.40 to $1.35.
“We are lowering our estimates for June and September quarters given potential for lower demand from macro uncertainty (Brexit related), currency volatility and lengthening replacement cycles (average replacement rate has gone from around 24 months in calendar year 2013 to about 28 months recently) and our model implies replacement rates could extend to 30 to 36 months,” the group of Citi analysts wrote in the note.
Apple’s revenue is in total about 13 percent exposed to the E.U., and about 2.3 percent is linked directly to the United Kingdom. Given the pound’s recent free-fall into 31 year lows, U.K. citizens are suddenly finding they enjoy a lot less buying power then they did about a month ago.
Citi did keep its “buy” rating on the share -with a target price of $115.
“We believe the Apple ecosystem keeps customers in the Apple ecosystem, which does not end but rather begins with one product and generally results in additional future products,” Suva wrote. “We believe it is only starting to make progress in software and services that will help create and monetize a consumer and corporate installed base.”