Morgan Stanley Critiques Apple’s Production Transition from China to Vietnam and India

Please note that this content does not constitute investment advice. The author does not hold any positions in the stocks mentioned.

Morgan Stanley’s Reaction to Apple’s Recent Earnings Report

The recent earnings report from Apple has garnered a critical response from investment giant Morgan Stanley, despite the company surpassing analysts’ expectations for revenue and earnings per share (EPS) in its second fiscal quarter. Apple announced revenues of $95.4 billion and an EPS of $1.65. Yet, the stock experienced a downturn, dropping 4% in aftermarket trading. This decline stems from ongoing uncertainties regarding the repercussions of tariffs, Apple’s production transition from China, future developments in its Services sector, and anticipated upgrades to its Siri software.

Mixed Sentiments on Apple’s Outlook

Morgan Stanley analysts expressed a blend of optimism and concern regarding Apple’s performance. Analyst Erik Woodring maintained an Overweight rating for Apple, along with a price target of $235 per share. He acknowledged the corporation’s strong iPhone growth, revenue from China, and steady demand in both recent and current quarters. However, he also emphasized a desire for more comprehensive insights into Apple’s long-term strategies.

Woodring highlighted that Apple would incur only $900 million in tariff costs during the June quarter, a noteworthy result given its reliance on Chinese manufacturing. This indicates some success in Apple’s approach to diversify its production to other Southeast Asian countries.

A chart displaying Apple's stock price — Apple’s shares are experiencing a decline in premarket trading following the latest earnings report.

Concerns Over Strategic Clarity and Financial Guidance

Despite Morgan Stanley’s support for Apple, Woodring voiced apprehension regarding several aspects of the earnings call. Notably absent was segment-level guidance for the current quarter, specifically regarding the Services division, which is traditionally highlighted in quarterly reports.

There were also inquiries regarding the details of Apple’s strategy to shift its production away from China. Woodring noted that Apple did not provide specific commitments about how much production would relocate to India or Vietnam in the subsequent quarter. This uncertainty contributes to the ambiguity surrounding the potential long-term effects of tariffs on Apple’s sales figures.

Furthermore, Apple did not clarify its pricing strategies or other means to mitigate tariff impacts and failed to offer a revised timeline for the upcoming Siri upgrades, leaving investors wanting for more.

Sales Performance in Greater China

In the Greater China region, which encompasses Taiwan, Hong Kong, and Mainland China, Apple’s sales plummeted to $16 billion. The decline has been attributed to currency fluctuations, with CEO Tim Cook mentioning in a follow-up discussion that the expected increase in iPhone purchases due to tariffs has not materialized. This phenomenon—known as advance buying or order pull-through—can artificially elevate current revenue figures, potentially resulting in reduced revenue in future periods.

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