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A band of Apple most bullish fans on Wall Street are growing increasingly bearish over concerns that holiday iPhone sales have been weak and that the company needs new breakthrough products to fend off rivals Google and Samsung.
At least five analysts have cut their price targets for Apple since December 16, with some saying Apple's purchases from suppliers indicate iPhone and iPad sales may not meet projections. Because the two products are Apple's largest sources of revenue and profit, any slowdown in demand would bode ill for growth prospects.
The reports from Citigroup, Pacific Crest Securities, Mizuho Securities USA, BMO Capital Markets and Canaccord Genuity mark a reversal from earlier this year, when analysts were racing to issue upbeat predictions, with at least two saying Apple would top US$1,000. Instead, the shares have dropped more than 25 per cent from a September record amid speculation the iPhone is saturating the market, ratcheting up pressure on Apple chief executive Tim Cook to introduce a new hit product.
"Apple is feeling the heat," said Michael Obuchowski, a portfolio manager at North Shore Asset Management, which owns Apple shares. "There is a lot of pressure on Apple to bring new magical devices to the market, and that has not happened in a while." He said the latest iPhone and iPad mini are incremental improvements on previous devices.
Glen Yeung, an analyst at Citigroup, wrote in a note on December 16 that Apple's Asian suppliers have been reporting cuts in orders, raising questions about the iPhone 5's strength. The bank reduced its rating on Apple's stock to neutral from buy and cut its price target to $575 from $675.
With Apple projected to have won 230 million iPhone users by the end of the year, the company's customer growth will start to ebb because it is approaching a saturation point, said Andy Hargreaves, an analyst at Pacific Crest Securities. He scaled back his prediction for new iPhone customers in 2013 to 62.4m from 84.3m.
"Global consumer demand for iPhone 5 is not as strong as we anticipated," Mr Hargreaves said in a report, in which he cut his target price for the stock to $565 from $645. "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 probably hurting iPhone sales, he wrote.
China, a country where many investors have been looking for Apple to generate growth, also is presenting challenges, according to BMO Capital Markets. While Apple said yesterday it sold 2m of the iPhone 5 in the device's first weekend on sale in China, the company is not likely to team up with China Mobile, that country's largest wireless carrier, until the second half of 2013, BMO technology analysts wrote in a report. It also reducing their estimate for iPhone sales to 165.5m from 171.5m for fiscal year 2013. Samsung, which uses Google's Android software and is Apple's biggest smartphone rival, is advertising heavily in the US as well as in Asia, according to the report.
Still, many analysts remain optimistic. Brian White of Topeka Capital Markets maintained his prediction that Apple's stock will reach $1,111, citing prospects for iPhone growth in China.
* Bloomberg News