Shares of Apple (AAPL) are $3.75, or 0.7%, at $513.54, recovering from their worst levels of the morning, as the Street cuts estimates for the iPhone and debates whether Apple has greater competition in smartphones and tablets.
The debate follows Apple’s announcement last night it sold over 2 million iPhone 5 units in China in the first weekend the device went on sale, a result that some analysts cheered as setting a new record.
As I mentioned earlier, Glen Yeung with Citigroup cut his estimates for the fiscal year 2013 ending in September, citing both supply-chain component order productions, and also rising competition from Samsung Electronics (005930KS) and other vendors of Google (GOOG)�Android-based smartphones, as well as cannibalization of the iPad by its smaller, cheaper sibling, the mini. Yeung changed his rating on the stock to Neutral from Buy, and cut his price target from $675 to $575.
Sanford Bernstein‘s�Toni Sacconaghi�was among those defending the stock overnight, reiterating and an $800 price target, calling Apple’s risk/reward balance “compelling.”
But then came another negative note this morning. Pacific Crest’s Andy Hargreaves reiterates an Outperform rating, but cuts his price target to $565 from $645, writing that “We believe weak global eco- nomic conditions and saturation at the high end of the smartphone market are reducing Apple�s ability to add new iPhone users.”
Hargreaves cut his fiscal 2013 iPhone estimate from 174 million units to 151 million, and cut his 2014 estimate from 181 million units to 161 million.
Hargreaves’s new estimate leads to a financial estimate of $182.2 billion in revenue and $45.13 in EPS this year, down from $198.7 billion and $51.49 previously.
Apple’s market is simply becoming saturated, Hargreaves avers:
Faster-than-expected inventory builds in Western Europe and supply-demand equilibrium in the United States suggest that global consumer demand for iPhone 5 is not as strong as we anticipated. Although we believe iPhone 5 remains the best-selling high-end smartphone on the market and is likely gaining significant share right now, a combination of market saturation, weak global demand and incremental innovation that has surpassed consumer demand are likely negatively impacting iPhone sell-through. We believe saturation at the high end of the smartphone market, a soft global consumer demand environment and incremental innovation that has surpassed many consumers� needs are negatively impacting iPhone 5 sell-through. We believe faster-than-expected supply-demand equilibrium in the United States and building iPhone inventory in Western Europe support this view. Our work suggests that iPhone retention rates remain extremely high, so slower-than- expected sales to new users are likely driving the weakness in sell-through versus our expecttions.
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