Apple bulls need to rethink their positions after the company reported its weakest iPhone sales since the product’s launch in 2007, FBR Capital Markets analyst Daniel Ives said Wednesday.
Ives reduced his price target on shares of Apple to $130 from $185. The stock was down about 4 percent in premarket trading.
“You’ve got to take off the rose colored glasses,” Ives told CNBC’s“Squawk Box.” “This was definitely a bit of a gut punch for the bulls.”
Apple on Tuesday reported fiscal first quarter earnings that beat analyst estimates, but revenue and sales of its most important product came in below expectations. The company reported that it sold 74.8 million iPhones in the quarter, compared with expectations of about 75.46 million.
The company also prepared investors for more moderate growth, saying it expected second quarter revenue of $50 billion to $53 billion. The average analyst estimate had been for $55.61 billion, according to StreetAccount.
But the real game changer was Apple’s commentary around China, Ives said.
Read More: Apple’s latest woes? Safari is crashing
Apple began to see “some signs of economic softness” in its Greater China region earlier this month, according to CEO Tim Cook.
More than 24 percent of Apple’s fourth quarter revenue — $12.52 billion of $51.50 billion — came from Greater China.
But FBR believes the growth issues are part of a near-term situation that can be resolved at the start of Apple’s next iPhone cycle.
“Ultimately, it comes down to iPhone 7. That’s really what you’re really hanging your hat on,” Ives said, noting that growth of 240 million units could be on the horizon.
Apple’s most recent iPhone model, the 6S, has been viewed by many analysts as boasting too incremental an improvement over prior iterations to warrant an upgrade. Cook said on the company’s earnings call that he expects iPhone unit sales to decline in the fiscal-year second quarter.
“It’s a hand-holding period. You don’t put up the white flag. We view it as similar to two years ago, from [iPhone] 5S to 6. It’s a turbulent period, but I think brighter days are ahead with iPhone 7, as well as what Cook does with $200 billion in cash,” Ives said, referring to Apple’s $216 billion cash pile, which grew 5 percent from the previous quarter.
—CNBC’s Everett Rosenfeld contributed to this report.