Analyst BTIG downgraded Apple from buy to neutral Monday citing...
Analyst BTIG downgraded Apple from buy to neutral Monday citing changing dynamics in the wireless industry, including squeezed margins caused by frequent upgrade activity by iPhone customers, the possible need for a “price cut” on the $600 iPhone and the…
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“elevated expectation” that the company will deliver “another revolutionary product” into the marketplace. The downgrade was made despite BTIG’s belief that Apple will deliver “another blow-out quarter” in fiscal Q2 of $40 billion. “We expect post-paid wireless operators to remain firm in their plan to stunt the pace of phone upgrades in 2012,” said Walter Piecyk, analyst, adding that some of the results of that strategy will be felt in the current quarter. Pressure will mount on Apple to grow its business in the pre-paid dominated emerging market space, “in which handset subsidies are a rarity” and the high price of the iPhone consumes a “big chunk” of a household’s monthly income, according to Piecyk. BTIG’s thesis won’t be supported in the current quarter, it said, because pent-up demand in China and the launch of the iPhone in 30 new markets are likely to drive strong demand that offsets sequential declines in existing markets. BTIG expects Apple to sell 33 million iPhones in fiscal Q2 and 27.5 million phones in fiscal Q3. The company maintains that Apple is the primary beneficiary of an “accelerating growth trend in the global adoption of smartphones,” noting that global penetration of smartphones hasn’t yet reached 30 percent. Subsidies by wireless operators have fueled the growth of the iPhone since its inception. Even in the pre-paid dominant markets of China and Europe, heavily-subsidized iPhones are available to users willing to sign up for a contract, BTIG said. Wireless operators have been happy to subsidize smartphones to new and existing customers in order to provide a lift to the average monthly bill (ARPU) of their customer base -- a metric which had been falling for the past three decades -- but now the cost to drive ARPU growth is starting to “eat away at profitability,” Piecyk said. The practice of operators offering generous upgrade policies -- including some that enabled a fully-subsidized phone upgrade halfway into a 2-year contract -- could be in flux, he said. “We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise to post-paid and pre-paid operators, alike,” he said.