Apple Inc's (AAPL) upcoming launch of iPhone 3.0 OS and iPhone Pro will fill in the "gaps" and help keep the competition at bay, but the lack of an entry level iPhone, could cut into Apple's market share, says RBC Capital analyst Mike Abramsky.
Mr. Abramsky said in a note to clients:
"Positively, the new features addresses iPhone's major shortcomings vs. competitive platforms such as BlackBerry, Android and Windows Mobile, and may enable developers to create more innovative apps, however, in our view, the new features are evolutionary vs. revolutionary, sustaining momentum and developer interest vs. competitive platforms."
The analyst said Apple appears unlikely to launch an entry level iPhone, leaving the company vulnerable to share gains from lower-priced competitive alternatives.
Of course, having no entry level iPhone may go a long way to helping protect margins, which Mr. Abramsky sees coming under serious pressure from the growing competition in the premium Smartphone space.
Mr. Abramsky reiterated his "underperform" and $70 price target, noting that falling margins on greater competition could risk Apple's premium valuation to the NASDAQ, and PC/wireless peers.
"Our investment thesis would change if we saw an upturn in forward demand indicators, new products or innovations that would offer another growth cycle, resolution of near-term uncertainty over Apple's leadership."