- BMO Capital Markets downgraded Apple (NASDAQ:AAPL) on Wednesday.
- Apple has hit a plateau with its biggest moneymaker, the iPhone, BMO argues.
- And the company doesn't have a product on the horizon that can save it.
- Watch Apple's share price move in real time here.
Apple shares are dropping after receiving a rare downgrade from Wall Street.
On Monday, BMO Capital Markets downgraded Apple to "market perform," while also lowering its price target and estimates for the company's future.
"There has been much in the press about order cuts for iPhone X, and we believe a weaker mix in Q1 will push estimates lower for March and beyond," Tim Long, an analyst at BMO said in a note to clients. "Following 10 years where [iPhone] average selling prices have generally moved higher, we believe prices will plateau as with the rest of the industry."
The iPhone X seems to have one big problem: its price. According to Long, the $1,000 starting price of the new phone is a big reason for the weaker demand for the phone. There were still lines at the phone's release, and it was hard to get for a while, but Apple recently instructed its suppliers to cut their iPhone X production targets in half, due to lower than anticipated demand.
The high price of the phone also represents what Long thinks is the end of the rope for phone prices. Only about 12% of phones sold globally are priced above $600, which limits the market for high-priced phones like the iPhone X. Long thinks about 30% of all iPhones sold in 2018 will be priced above $900. For the current quarter, Long cut his iPhone unit estimate by 8 million to 55 million.
All this means that 2018 could be rough for Apple.
"We expect a meaningful guide lower when the company reports on Thursday night, on the order of $5-6 billion compared to consensus revenue estimates," Long wrote. "We wouldn’t be surprised by some upside to the Services business, and some of the other products, but it won’t be enough to offset the iPhone miss."
Long said that in 2016, the company's stock was facing a slide similar to the 3.24% drop it has seen so far in 2018. At the time though, the company had new OLED phones coming and the iPhone X was on the horizon, which helped get investors excited about the company. "No such product is on the horizon now," Long concluded.
Long lowered his price target to $162, which is 2.4% below the company's current $166 stock price.
Apple is set to report earnings after the bell on Thursday.