By Lucinda Shen
June 2, 2016

Apple iPhone sales dropped for the first time ever last quarter, and according to Goldman Sachs, it won’t be an isolated incident.

The investment banking giant lowered its 12-month price target for the tech giant from $136 a share to $124 on Thursday, noting that global demand for the iPhone, especially in China, is expected to come in lower than expected over the next two years.

“We are trimming our Apple estimates to reflect lower growth expectations for the smartphone industry, following recent reduction of our global smartphone unit growth forecast for 2016 and 2017,” the team of analysts led by Simona Jankowsky noted.

“Our reductions [on iPhone sales] are driven by lower market growth, as well as lower average selling prices on a greater shift from developed to emerging markets, which we expect will drive a higher mix of the lower-priced iPhone SE (and its successors) relative to the higher-priced iPhone 7 (and its successors).”

Previously, Goldman predicted that iPhone sales were expected to rise consecutively between 2016 and 2018, from 212 million to 251 million units. But now the investment bank is not only predicting lower sales for all three years, but it’s also expecting sales to drop off from 231 million units in 2017 to 223 million in 2018. That deviates even from the Wall Street consensus.

 

 

Goldman did downplay the reduction in 2018 sales, saying that it accounted for “typical market share fluctuations” since Apple introduces a new iPhone generation about every other year. “In particular, Apple’s market share has tended to go down in the ‘s’ product cycle years, after stronger upgrades and new adds in the round number product cycles,” analysts wrote.

 

 

Goldman reiterated its “Buy” rating on the stock, saying its iPhone unit forecasts have assumed significantly lower numbers of smartphone upgrades and purchases. In fact, in the U.S. alone, the bank noted that surveys have suggested considerable pent-up demand, with 44% of U.S. consumers saying that they plan to buy a new iPhone come fall.

Apple is also reportedly planning bond offerings in Taiwan and Australia to raise cash. The funds would help the tech giant offer more dividends and share buybacks. The move would likely keep many investors happy, and could also be seen as a sign that Apple believes its shares are trading at a discount.

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