China isn't Apple's only problem, iPhone sales are 'collapsing,' tech investor Dan Niles warns

Hedge fund manager Dan Niles believes Apple's troubles are much bigger than China, and Wall Street is largely ignoring them.

Niles, who made a name for him in the technology space, warns that iPhone price sticker shock is the catalyst that will take Apple stock down even further this year.

"IPhone sales are collapsing right now," the AlphaOne Capital managing partner said Wednesday on CNBC's "Trading Nation." "You can't sell a $1,000 phone to China where the average GDP per person is $10,000, or to India where it's $2,000."

The issue will snowball, according to Niles, who is shorting the stock. He contends the slower sales will hit its services segment harder than the Street — and potentially even Apple — acknowledges.

"The iPhone is what drives the services business with a lag. So, if you're not selling as many phones, well, how are you going to sell AppleCare? How are you going to sell Apple Music? That's the issue with Apple," he said. "They're going to continue to lose market share, which ultimately will hit their services business."

Last week, the company delivered an unprecedented earnings warning that the U.S.-China trade war was eating into profits. Apple stock plunged 10 percent on the news. The stock has rallied by 8 percent in the past week, but it's still down 29 percent during the last three months.

'Not a name you want to own'

Apple's announcement didn't catch Niles by surprise.

On "Trading Nation" last August, Niles predicted Apple would see negative effects from the China tensions. He is questioning why it took Apple CEO Tim Cook waited so long to address them.

"People are forgetting that China is 18 percent of their revenues in the most recent quarter," Niles said on Aug. 15. "China is actually driving their business. So if you think about what's going on right now with the trade spat that we have going on with China, I mean this is something that should really concern you."

No matter how you slice it, Niles sees major trouble ahead unless Apple lowers prices.

"This is not a name you want to own where things are getting better," Niles said. "They're getting worse."

Apple did not respond to a CNBC request for comment.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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