Skip to Content
US Videos

iPhone Still Has Its Edge

Near-term headwinds from a strong dollar and a weaker global economy don't mean Apple is losing its market position in smartphones, and the firm's shares currently look undervalued, says Morningstar's Brian Colello.


Brian Colello: Apple (AAPL) reported fiscal first-quarter earnings tonight and, overall, the near term is a bit weaker of a picture than what we were expecting heading into the quarter, but it wasn't as bad as some of the drastic measures that we've seen from some other analysts as well. We are seeing currency headwinds and a little bit weaker macro picture than what we expected.

For the iPhone for the December quarter, they barely obtained growth. It sold pretty much flat-ish with the prior year and was actually down a little bit if you look at sales to end customers and take out what's in the channel as well. The bright side of this is that pricing was actually fairly strong; it was still up 3% despite a lot of currency headwinds. But because of a weakening macroeconomic picture because of weakening currency, they did face a some headwinds.

In the March quarter, it's looking like iPhone sales will be down again, but maybe not as bad as the lowest of expectations. It's a little bit worse than we were expecting, but pretty much the warning signs were there that March was going to be a weak quarter. Not only did you have replenishment from a year ago and a tough comparison because they were still trying to catch up from holiday demand a year ago, but also China appears to be a little bit weaker than what we expected as well as a lot of other nations around the globe as we look at currency and oil being depressed and so on.

So, overall, it's not the best demand picture. The long-term view, I think, is still pretty good. This doesn't seem to be a case of them losing market share or having a competitor with a more enticing product. It seems to really be macro related. So, when we look at the long term and we think about Apple, we still see it as a good investment idea today. 

Brian Colello does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.