Apple faces iPhone demand headwinds as purchase intent falls in US and China

UBS analysts report weakening iPhone purchase intent in the US and China, with US intent dropping to a 5-year low of 17% and China falling to 16% from 22% year-over-year, potentially impacting Apple's near-term growth. While US customer retention remains strong at 88%, China's retention is lower at 75% amid competitive and macroeconomic pressures. Additionally, consumers are holding onto iPhones longer, with the average device age increasing to 22.9 months, and interest in GenAI smartphones outside of China remains muted due to pricing, privacy, and application availability concerns; UBS maintains a 'Neutral' rating on Apple with a 12-month price target of $210.

Analysis

Apple Inc. (AAPL) faces potential near-term growth challenges stemming from weakening iPhone purchase intent in its critical US and Chinese markets, as highlighted by UBS analysts. Survey data from over 7,500 smartphone users indicates a 1-percentage-point decline in 12-month US iPhone purchase intent to 17%, a five-year low, while intent in China has significantly dropped to 16% from 22% year-over-year. This softening demand is compounded by lengthening device replacement cycles, with the average age of an iPhone in use increasing to 22.9 months, up from 21 months in the prior year and 21.8 months in the last survey. While US iPhone retention remains robust at approximately 88%, China exhibits a lower retention rate of 75%, attributed to competitive pressures and macroeconomic headwinds. Furthermore, consumer interest in GenAI-enabled smartphones outside of China is described as 'relatively lukewarm,' with pricing (50%), privacy concerns (39%), and application availability (28%) cited as primary deterrents, and consumers showing unwillingness to pay a significant premium. In contrast, net interest in GenAI smartphones is strong in China at roughly 74%. UBS maintains a 'Neutral' rating on Apple, with a 12-month price target of $210, equating to approximately 28 times its estimated CY26 earnings per share of $7.49, a valuation largely in line with Apple's trailing 5-year average. Apple shares showed minimal reaction, trading around $205.

Key Decisions for Investors

• Investors should closely monitor upcoming iPhone sales figures and market share data, particularly from the US and China, given the flagged decline in purchase intent.
• Consider the impact of elongated replacement cycles and tepid GenAI adoption outside China on Apple's near-term revenue growth and margin profile.
• Evaluate Apple's strategic responses to stimulate demand, including potential pricing adjustments or innovative features for future iPhone releases, especially concerning AI integration.
• Given UBS's 'Neutral' rating and a price target implying valuation in line with historical averages, assess whether current market expectations adequately price in these identified headwinds.