It’s only been seven weeks since Morgan Stanley analyst Katy Huberty elevated Apple onto Morgan Stanley’s “Best Idea” list on the strength of what her proprietary surveys and Apple’s forward-looking statements were saying about iPhone sales.
So the note she issued to clients Sunday night was a bit of a shock.
According to Huberty, rising international prices and smartphone market oversaturation outside China are weighing on Apple’s primary source of revenue (52% of fiscal 2015 sales).
The same surveys that showed iPhone sales rising 6.8% in fiscal 2016 now show them falling 5.7%. In the current quarter—the so-called “tough compare” because last year’s blow-out iPhone 6 unit sales will be hard to beat—what was going to be a 6.1% increase is now a 0.6% decline.
Apple (AAPL) is still a Morgan Stanley ‘Best Idea.’ Hubert sees Apple’s market share increasing to record levels in 2016, up eight percentage points in the U.S. and two in China.
But Apple is so widely held and the iPhone so closely watched that whenever unit sales decline, Wall Street catches a cold.
Anticipating a strong reaction, Morgan Stanley (MS) has lowered its Apple price target 12%, to $143 from $162. A conference call with investors is scheduled to 8:30 a.m. ET, 5:30 a.m. PT.
UPDATE: On the conference call Huberty was joined by Jasmine Lu, who covers the Asian supply chain for Morgan Stanley.
Lu’s iPhone component order estimates have been cut significantly: 10% in the December quarter and 20% in March. iPhone demand, she said, seems to be weaker than Apple had expected only two months earlier.
Huberty, however, framed the lowered estimates as a worst-case scenario. Some of the supply chain cuts could be due not to weak demand but to robust inventories. And if sales of the iPhone in China play out the way she anticipates, the lower estimates “allow for upward revisions.”
This is not a repeat of 2012-2013, she insisted, when the stock went into an extended free fall. She rattled off her reasons: The brand is strong. Customers are loyal. Gross margins are stable. R&D is going full tilt. And revenue streams from new products (Watch, Apple TV), apps, and media could start to make up for slowing iPhone growth.
A 4-inch iPhone—not currently included in her Apple model—would be frosting on the cake.
END UPDATE
Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple (AAPL) coverage at fortune.com/ped or subscribe via his RSS feed.
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