Apple shares dropped close to bear market territory on Monday on concern consumers are no longer clamouring for its cornerstone product, the iPhone.

The stock closed at a record of US$232.07 on 3 October. Since then, it’s plunged almost 20% — the official bear market threshold — as multiple suppliers indicated the company is cutting parts orders for the latest iPhones. Apple earnings on 1 November compounded concern when it reported flat unit growth and said it will stop disclosing how many smartphones it sells each quarter.

Apple and its supporters say the company can still generate revenue growth in a stalled smartphone market by charging more per device and selling customers an increasing amount of digital music, movies and other services. However, those strategies are relatively untested, especially compared to the past decade of iPhone ascendance.

“When we get into these situations where the current product may not be moving as well as investors expected, some get scared and then the fear compounds itself,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group, which owns Apple stock. “We’re not really too concerned. Some of this is probably just noise like it always is.”

Apple shares fell 4% to $185.86 on Monday.

The company’s shares are often buffetted by signals from its massive, global supply chain. Last year, warnings from some manufacturing partners sparked concern that Apple’s new iPhone X might be a dud. But when the company reported holiday results, sales numbers for the device were solid, sparking a recovery in the stock.

Weaker orders

This time around, more iPhone suppliers and assemblers have warned of weaker orders. Underwhelming earnings by Hon Hai Precision Industry and a quartet of smaller companies including Japan Display reducing revenue estimates, led investors to conclude that Apple isn’t getting the initial rush of sales for new iPhone models that it usually does.

“More growth-orientated holders are figuring out that growth isn’t occurring like they thought it would, especially with the new fancy phones,” said Kim Forrest, a senior portfolio manager at Fort Pitt Capital Group. Apple exacerbated this by changing the way it reports unit sales, she added. “That was a huge red flag. It seems like they just didn’t want to have to deal with those questions.”

The iPhone accounts for about two-thirds of Apple revenue, so a lack of unit growth from this product line is a problem. For fiscal 2019, analysts predicting sales will expand 5%, down from 16% in the previous year, according to data compiled by Bloomberg.

Analysts are less bullish on Apple’s stock than any of the other technology giants. About 56% of those covering it recommend buying, according to data compiled by Bloomberg. Compare that to Google parent Alphabet, where 91% of ratings are buy. For Facebook, 81% are buys, and 94% of Amazon.com analysts are positive.

While Apple shares are still up about 10% in 2018, outperforming many technology peers, some investors and analysts are arguing that the recent declines have already made the stock cheap. Apple’s stock is trading at 15.7 times earnings. That compares to a 16.7 times multiple for the Dow Jones Industrial Average. The average analyst 12-month price target on the stock is $231, about 25% above current levels.

Ross Gerber, co-founder of Gerber Kawasaki Wealth & Investment Management, called the climate of fear around Apple “absurd”.