Brexit Might Take a Bite Out of Apple Warns Citi Analyst

A team of analysts led by Jim Suva projected in a Tuesday note that the tech giant’s earnings will likely come in below Wall Street’s expectations in part due to fallout from the U.K.’s decision to leave the EU, and subsequent currency fluctuations.

Citi lowered its revenue estimates for Apple to $41.2 billion for the third quarter, down from Citi’s previous estimate and Wall Street consensus of $42.2 billion. Earnings per share were also reduced from $1.40 to $1.35.

“We are lowering our estimates for June and September quarters given potential for lower demand from macro uncertainty (Brexit related), currency volatility and lengthening replacement cycles (average replacement rate has gone from around 24 months in calendar year 2013 to about 28 months recently and our model implies replacement rates could extend to 30 to 36 months,” the group of Citi analysts wrote in the note.

About 13.2% of Apple’s revenue is exposed to the EU, while another 2.3% to the U.K., according to data from FactSet. Since the referendum though, the pound has reached a 31-year low against the dollar. That means U.K. citizens will have lower buying power—which could also dampen demand for Apple products on in the country.

Suva isn’t the only Wall Streeter to raise concerns about Brexit’s impact on Apple. Cowen and Co. wrote in a June note that the U.K.’s decision to leave the EU represents a dot of near-term demand uncertainty.

Nevertheless, Citi maintained a “Buy” rating on the stock, with a price target of $115 a share.

“We believe the Apple ecosystem keeps customers in the Apple ecosystem, which does not end but rather begins with one product and generally results in additional future products,” Suva wrote. “We believe it is only starting to make progress in software and services that will help create and monetize a consumer and corporate installed base.”

Apple is expected to report earnings on July 26.