Apple falls after reports of Watch connection issues, poor reviews

Shares of Apple (AAPL) are under pressure on reports of Apple Watch connectivity issues and somewhat disappointing reviews for the upcoming device. Meanwhile, Rosenblatt analyst Jun Zhang said checks suggest iPhone 8 preorder volume is below that seen for prior models.

SERIES 3 SMARTWATCH

According to a report by The Verge, citing a company spokesperson, Apple has admitted that its new LTE-enabled Series 3 smartwatch, which starts shipping this Friday, has been experiencing connectivity issues.

“We have discovered that when Apple Watch Series 3 joins unauthenticated Wi-Fi networks without connectivity, it may at times prevent the watch from using cellular. We are investigating a fix for a future software release,” the spokesperson reportedly said.

Meanwhile, Apple Watch Series 3 reviews are out, and consensus seems to be that it is convenient to have a watch with a connection when you do not have a phone, but that it has poor battery life when used in those situations, CNBC reported.

Most reviewers also suggested buying the GPS model instead of the one that can also place phone calls, the publication added.

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IPHONE 8 PREORDERS

In a research note to investors, Rosenblatt analyst Jun Zhang said checks indicate about 1.5M iPhone 8 preorders on JD.com (JD) in the first three days of availability, versus 3.5M for the iPhone 7 in its first three days. He also pointed out he thinks China Mobile’s (CHL) iPhone 8 preorder volumes are around 1M units, below those seen for the iPhone 7 and iPhone 6 in the first three days.

For the U.S., Zhang said initial feedback suggests iPhone 8 preorder volume below the iPhone 7 and iPhone 6. The analyst told investors he remains concerned the iPhone 8 production plan for second half 2017 may need to be cut and the iPhone X production ramp might not be able to meet demand for the December and March quarters.

‘SOLID’ IOS 11 REVIEWS

Meanwhile, Macquarie analyst Benjamin Schachter told investors that the first round of iPhone 8 and iOS 11 reviews support his positive view of Apple and its Service business, with the initial wave of ARKit apps expected to have a “solid reception.”

iOS 11 is one of the most substantial iOS updates in recent memory, the analyst noted, adding that the App Store has also been completely redesigned to be more visually appealing and to better promote the discovery of new apps, which should increase download rates that have been slowing for mature users.

However, #Schachter acknowledged that it will likely be harder for investors and others to track app revenue, given the removal of the top-grossing charts. The analyst pointed out that the most highly praised new feature is the iPhone 8 Plus’ Portrait Lighting.

While Apple is not positioning it as such, Schachter believes it is essentially the best augmented reality app on iOS. The first wave of popular AR apps will not be games, but instead be more natural extensions of existing smartphone apps, he argued.

The analyst reiterated an Outperform rating and $180 price target on the shares.

PRICE ACTION

In Wednesday’s trading, shares of Apple have dropped nearly 2.5% to $154.84. Note that most iPhone and Watch suppliers are under pressure on the news.

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