What can Apple do about the weak upcoming iPhone cycle?

We downgraded Apple four weeks ago on the basis of iPhone demand being weak next year, 15-20% below consensus expectations, as 1) the current super-cycle brought forward demand 2) the next iPhone will likely offer limited innovation, and 3) surveys suggest consumers intend to spend less on electronics as the economy re-opens.

In today’s work, we look at what measures Apple took in the past in reaction to weak iPhone demand, in order to anticipate what they are likely to do next year. Apple was able to foster replacement during the iPhone XR/XS weak cycle by pushing iPhone XR into the hands of customers with aggressive marketing and trade-in programs. That strategy accelerated volume recovery but had limited impact on earnings power. We expect a similar playbook this time round and maintain revenues to decline next year and a ~10% miss on EPS. We rate Apple Sell, target price $90.