Shares of Apple (AAPL) are down $3.09, or 0.7%, at $451.40, as the company gets a duo of skeptical reports this morning, with more estimate cuts for the near-term iPhone outlook, but also a defense from Credit Suisse.
Canaccord Genuity’s Mike Walkley, reiterating a Buy rating on the shares, cut his price target to $600 from $650, after trimming this year’s EPS estimate to $43.59 from a prior $45.70, writing that “With a host of impressive Android smartphones ramping in 1H/C2013, including Samsung [Electronics's (005930KS)] flagship Galaxy S 4, we believe Apple could lose meaningful near-term market and profit share.”
Samsung may surpass Apple in terms of industry profits in the June quarter, he believes.
Walkley writes that his conversation with suppliers, Apple will likely introduce an “iPhone 5S” this summer, “or during calendar Q3 2013,” which might be slightly later than the June time frame he’d originally expected.
He also thinks the company will come out with a lower-priced iPhone this year. He thinks Apple will focus on differentiation through software and its “ecosystem,” which is what he thinks the company needs to do:
With Apple�s cumulative iOS hardware sales around 550M and its large base of iTunes customers with their credit card information, we believe Apple has the opportunity to offer differentiated services in areas such as mobile payments to bolster its already sticky ecosystem.
Walkley sees the iPhone 5 still leading sales in developed markets, albeit with trends a tad below seasonal expectations for the iPhone:
Further, based on Apple�s March quarter guidance and our checks indicating potentially excess supply of the iPhone 5 offset by limited channel inventory for the iPhone 4 and 4S, our March quarter iPhone estimate of 36M units represents a 25% sequential decline in iPhone shipments. Consistent with our March quarter estimates, our Q1/C2013 wireless store surveys during January and February indicate the iPhone maintained its leading market share and the iPhone 5 was the overall best-selling smartphone in the U.S. market. However, overall iPhone sales declined in line with normal seasonal patterns, and we estimate February sales were softer than January levels. Please see our handset survey report published March 3, titled �Seasonally softer February smartphone sales; Apple and Samsung maintain dominant positions,� for further details on our Q1/C2013 handset industry trends analysis.
Walkley cut his June-quarter iPhone estimates to 25 million units from a prior 36-million-unit forecast.
Walkley is also upbeat about prospects for a lower-priced iPhone, on the order of $300 to $350 wholesale, for developing world markets:
With a more competitively priced mid-tier iPhone including 2G/3G only SKU�s for price-elastic pre-paid international markets, we believe Apple can still obtain industry-leading gross margins despite selling a lower-end SKU into new markets.
Another negative note comes today from boutique research firm Bluefin Research Partners’s John Donovan, who cut his estimate for this quarter’s iPhone unit sales by a million to 36 million, and cut his iPad estimate to 19.6 million from 20.5 million.
Donovan writes that he’s below consensus for the quarter, and that with the iPhone’s “growth engine stalled,” and with a “need for innovation,” a lower-priced iPhone seems important:
A low-cost iPhone product to more accurately serve the replacement/upgrade segment versus the new user opportunity may be necessary to continue AAPL�s ascension in the smartphone market going forward. The initial product is likely to be focused for the Chinese market and would likely be a late-year product if any were to surface in CY 2013. Growth in this segment will be challenging in the U.S. as the company holds more than 50% of the market today, thus focus is shifting overseas, particularly to China. While AAPL�s share is over 50% in the U.S., it�s global share is under 20% based on smartphone estimates of 775-800M units worldwide, putting Apple behind Samsung and China OEMs (collectively). Consensus estimates for CQ1 have been lowered from 37-40 million units to 37-38M, versus our projection of 36-37M.
Donovan is also below consensus for full-year iPad estimates, at 82 million to 84 million potential units. He writes that cannibalization of the full-sized iPad is “accelerating,” based on his “supply chain reads,” which show “Calendar Q1 and calendar 2013 projections being cut markedly”:
Our contention is that as the mini grows, the cannibalization of the traditional segment is greater than currently forecasted, especially with production issues resolved. Add to this the expected release of a mini retina display in 2H 2013, and it is likely to only thwart traditional demand even further. Of the 82-84 million in 2013, we expect as much as 55-58% of the total to be of the mini variety, an astounding percentage given the infancy of this product and the fact that the 2H refresh will only be the second generation offering in a mini package. While the news is less than optimistic on the traditional iPad, the addition of a 128 GB version and redesigned product scheduled for 2H 2013 should cement AAPL�s position as the premier premium tablet supplier, while also likely cannibalizing some MacBook Pro lower-end model sales.
Meantime, Credit Suisse’s Kulbinder Garcha reiterates an Outperform rating today, and a $600 price target, writing that “checks” by his Asian colleagues reinforce the notion of a cheaper iPhone, selling for $329 wholesale, which he thinks is a “positive” for the stock, as it would tend to support revenue and earnings growth:
Assuming Apple introduces a $329 iPhone in 2014 and starts to gain share in these lower price bands, we believe it could capture 40% share in the $300-$400 market. In turn, this can add incremental revenues of $16bn/$21bn in 2014/2015 and EPS of $3.13/$5.05 even allowing for cannibalization of the existing iPhone, (lower ASPs and GMs). This drives LT 2015 EPS power to $65.
Garcha is modeling sales of 38.2 million iPhone units this quarter, and 30.6 million next quarter. He has Apple delivering revenue of $180.45 billion this year, slightly below the consensus for $181.25 billion, and EPS of $44.92, above the consensus for $43.96. His 2014 estimate is for $206.9 billion and $54.03 per share, verus stye consensus for $204.2 billion and $49.71.
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