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Analyst: Slack Demand Sours Apple's Outlook

Analyst: Slack Demand Sours Apple's Outlook

Apple's latest iPhone and iPads can't get here soon enough if you're an investor. Weak demand keeps forcing Wall Street to revise estimates for shipments, as a Morgan Stanley analyst did Thursday. There's a product refresh on the way, but the competition will be much thicker in the fall, when Apple is expected to introduce new phones and tablets. There are also questions whether a low-priced iPhone would be worthy of "the Porsche of Phones."

Wall Street continues to take a jaundiced view of Apple's fortunes for the year, as evidenced by the latest research note on the company from Morgan Stanley, which revised its estimates Thursday for Apple shipments of iPhones and iPads.

Shipments of the iPhone for the quarter ending in March will be around 33 million, down from its original estimate of 37 million, while iPad shipments will be 21 million, up from an earlier estimate of 19 million, the company reported in a research note by Katy Huberty, Jerry Liu and Scott Schmitz.

Despite Huberty's belief that a new iOS7 could include a digital wallet "killer app," along with improvements in iCloud and Maps, she still has Apple delivering financials slightly under mid-year guidance. The brokerage has Apple racking up US$41.4 billion in revenue, and posting earnings per share of $9.59.

Morgan Stanley said it needed to adjust its numbers based on "slower demand and inventory adjustments ahead of September product launches."

Cash Catalysts

As tepid as the New York investment firm's estimates may be, they may be overly optimistic, according to Trip Chowdhry, managing director of equity research for Global Equities Research.

"This quarter will be pretty bad and it will be the same for the next quarter," he told MacNewsWorld.

"The real revenue catalysts are going to come in the third quarter of this year," he added.

That's when Apple is expected to roll out its new iPhone and iPad models.

In its research note, Morgan Stanley identified a number of near-term catalysts for Apple. The iPhone and iPad refreshes were in that mix, as well as a larger cash return to shareholders, new deals with two of Asia's largest telecoms -- Japan's NTT Docomo and China Mobile -- and a low-priced iPhone for emerging markets.

The Porsche of Phones

The low-priced iPhone has been a controversial topic for analysts. "That doesn't make sense for Apple," Chowdhry said.

"Would Porsche come out with a $5000 car so they can sell it to an emerging market?" he asked. "No, because Porsche is an aspirational brand. We aspire to get Porsche, even when we can't afford it."

Apple is not in the business of market share, Chowdhry said, "just as Porsche is not in the business of market share. Apple should leave low-cost phones to the Samsungs and Nokias of the world."

Apple is much more likely to continue its strategy of discounting older models of its phone rather than creating a low-price phone, said Ross Rubin, principal analyst with Reticle Research.

"When they release the iPhone 5S or iPhone 6, they can keep the iPhone 5 in the lineup at a lower price," he told MacNewsWorld. "They've had good success with that strategy with the top-tier carriers."

TV Redux

There are a number of long-term catalysts for Apple's success, Morgan Stanley noted. They include expanding distribution channels in China, Brazil and India; continued dominance of an expanded tablet market; and the introduction of an Apple TV set or watch in 2014.

That Apple TV could be coming sooner than people think, according to Chowdhry.

"Now is the time for Apple to launch this because it has the technologies in place to do it and the market is ready for it," he said.

An Apple TV could remake the market, added Rocco Pendola, director of social media for TheStreet.com.

"Apple took the Walkman and turned it into the iPod; it took the smartphone and turned it into the iPhone; and they made the PC irrelevant with the iPad, and now they're ready to revolutionize the television," he told MacNewsworld.

"It'll be expensive but it'll be aspirational," Pendola said. "But everyone will say it's time to spend 15 hundred bucks for a television again because Apple's in the market."

While raising doubts about Apple's financial performance during the first half of the year, Chowdhry was very optimistic about Apple's second half performance.

"There's an innovation vacuum in the market right now," he said, "and Apple is going to fill it."


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