Apple's China momentum in focus ahead of earnings after the bell

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Entertainment,Morgan Stanley,China

Apple has set investor expectations low and could surpass them even if sales growth is weak.

Analysts expect Apple to give a slow forecast for the current quarter, and its shares are down about 10% so far this year, underperforming its peers and the broader market.

Even worse is what the slump could indicate: Deteriorating conditions in a key market for Apple where it also manufactures the vast majority of its products. Chinese government agencies over the past year haveasked staff to curtail use of "foreign" devices — iPhones — suggesting that Apple may not have the support of Chinese national leadership.

"In strong iPhone cycles, Apple's China revenues typically grow much faster than Apple overall, as Chinese consumers embrace the new phone," Sacconaghi wrote. "The strong embrace is typically followed by several quarters of weaker , as we are seeing now."shows Huawei surged 70% on an annual basis in March, while Apple declined 19%, falling into third place. However, analysis of the data suggests that the "preliminary signs of iPhone demand improvement ...

"There's a chance Apple could see a relief rally/squeeze higher on a 'better than feared' earnings report/guide," Morgan Stanley analyst Erik Woodring, who has an overweight rating on the stock, wrote in an April note. "This creates a tricky setup, and one we don't believe investors necessarily need to step in front of."

 

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