Apple Sours: Analysts Doubtful of iPhone's Prospects

Apple Inc.'s (AAPL) introduction of its latest iPhone 3G S last Monday was met with much fanfare from analysts and investors alike. Company followers also lauded the price cut to its predecessor, the 3G.

The mood has decidedly changed with some analysts.

On Wednesday, Scotia Capital expressed doubts about how many units the Cupertino, Calif.-based company will sell this year as competition from other smartphone makers intensifies while existing iPhone customers fail to take up the new device. The cheaper model may not be enough of an incentive to capture new users, either.

"We believe the Street's iPhone sales expectations for fiscal 2009 may be too optimistic," Scotia analyst Gus Papageorgiou said in a note to clients.

Activations of the iPhone have been slowing at Apple's biggest carrier AT&T (T) and will likely continue to as comparable devices steal share, he said. The price cut to $99 for the older 3G model, which was designed to lure in new subscribers, isn't cheap enough either considering the monthly fees will remain comparatively high.

Upgrades to the 3G S from existing iPhone owners at AT&T won't come "anywhere near" the number that the 3G generated last year when AT&T offered the device at the full-subsidized rate of $199 with a two-year contract (and pricier monthly data plans).

Existing iPhone 3G owners aren't give the same deal this time around while the incremental hardware improvements are not likely worth the $399 to $499 it would cost to upgrade, said Mr. Papageorgiou, noting that Apple shares are trading at 24.6 times his earnings-per-share estimates. He concluded: "We would avoid Apple at this time."

Canaccord Adams analyst Peter Misek reinforced this view in a note released Tuesday that downgraded AAPL to a Hold from Buy with a price target of $150. He noted that the share price has soared 50% year to date. Combined with emerging "softness" in U.S. consumer spending during the summer quarter — tradtionally the slowest in the sector — he suggested investors move to the sidelines as the possibility of a correction gains pace.

Comments

[dandyapple:]

Analysts never get AAPL right. The lower 3G price is designed for Walmart distribution. The new 3G-S will sell like hotcakes since most IPhone owners want cutting edge performance, and tend to be people in industries that are not hurt as badly as the general economy. The new IPhone applications will also soar. Apple will deliver a record quarterly earnngs report in July and add another 5 Billion in cash to the Balance Sheet. This currently negative hype may be a prelude to covering the 17 Million Shares short on the last report.

Jun 17 01:23 PM

[Julian Ivan...:]

Christ.. assholes and analysts.. I think I'd rather hear from an asshole. What about all the people (ie. the other 98% of the phone market) who haven't bought an iPhone yet and can now do so for $99 in the US, or buy the new vastly improved one for a very competitive contract deal, who have been stuck with older contracts on other networks for the last 12-18 months but who can now switch as they're contract free?

Naysay naysay naysay. Weren't Apple Stores due to "shut off all the lights after 2 years," and the "iPod be an overpriced flop" when they were launched? Analysts: Plus ça change, plus c'est la même chose.

Morons.

Jun 17 01:46 PM

[sleepy:]

Analysts never imagine more than 6 months ahead. Steve Jobs is executing (spectacularly well) a whole lifetime business plan to create the world's standard personal information appliance, which started with the Macintosh in 1984 and developed further with Next. Next management and OS then took control of Apple, and that OS is the foundation of the iPhone.

Handset features had been hijacked by the government-mandated carrier cartels, and Apple is in the process of breaking that down. Expect major fluctuations in iPhone shipments as Apple moves from phase to phase of its plan. The fluctuations aren't relevant and are expected, so Apple has deliberately invoked subscription accounting over 2 years so these fluctuations aren't reflected in quarterly earnings.

Jun 17 01:48 PM

[Bismarck:]

If Apple would announce soon that they are either dropping AT&T and picking up Verizon as the carrier, or opening up the iPhone to various carriers to include Verizon, the stock would shoot up and of course all of us disgruntled BlackBerry users on Verizon would start celebrating and begin planning the switch to the iPhone. That is all it would take. There are massive amounts of people in the Midwest ready to buy an iPhone if the carrier were Verizon.

Jun 17 02:38 PM

[SiliconVall...:]

3GS has better graphics, faster CPU, significant improvement in battery life, and most importantly, supports ATT's new HSDPA 7.2 network. The upgrade to the network means a doubling of current download speed. All that will combine to make the 3GS a snappy fast device. Add in the OS 3.0 feature set and closing of previous iPhone weaknesses, the 3GS is a very competent and attractive personal device.

Will all these lead to higher sales? I do not know. From my desk, as my family considers our upgrade plans and friends ask us about buying the new iPhone 3GS, I can only say that at least 5 people will be upgrading and 15 more are switching from Verizon and Sprint to ATT just to grab the iPhone 3GS.

Jun 17 02:43 PM

[Kirk Kirkpa...:]

Analysis = anal + ysis (A greek word which means "to put out of").

Who is he kidding? Is he insane? Let's see, I have my app for filing my flight plans directly with the FAA as well as doing the flight planning. I have my scuba dive planner app and log. And I have my deep water charting app for my boat.

The Blackberry does that? The Pre? HTC?

What a f**king joke. Do these guys even live in the same world?

Jun 17 05:04 PM

[Economyst:]

What I find ironic is that when the first Iphone and subsequent Iphone 3G came out because they lacked many of the hardware features of competitive smartphones like a decent quality camera, decent battery life, support for HSDPA etc,, these were simply disregarded by Apple fans as being non essential to the experience. Now the Iphone has added these features they are trumpeted as being novel and essential enough to upgrade.

Jun 17 05:24 PM

[User 338722:]

What do you expect? These guys are still using Windows PCs.

What do they know from Cocoa Touch?

By the time Apple owns the mobile Internet, they will just maybe
have figured it out. Not really sure though. :-)

Sunny Guy

Jun 17 05:56 PM

[another.ana...:]

What's the difference between the utterances of an Anal ist & manure?

Manure has a positive use.

Ayuh

Jun 17 08:15 PM

[Roger Knights:]

Worry wall.

Jun 17 08:40 PM

[thinkb4uwrite:]

True that Apple is all of the above and more...Their ingenuity has catapulted the company way out ahead in mobile devices with the new 3Gs and their apps store. As staff will attest tell you at ATT stores - Apple sales eclipse everything else in the store combined. How can this be missed by analysts? However, I would point out that their main business is still computers...as the free downloads of new PC ready Safari attest - Apple received an unheard of 11 million downloads in first three days following introduction. This is only for a web browser - and most of these were for the PC version. Safari offers much better experience and design and is 6 times the speed of Microsofts latest version of Internet Explorer.

The iPhone and imac and new versions of their laptops at lower prices will again eclipse sales estimates. Also well known fact is the full pipeline of new products that are kept secret until they are ready to introduce them.

I remember also that most of the time during the rise of the iPod the company's P/E was in the 40's and that meant little to most investors in shying away from their stock. I bought apple stock just after the dot com crash with all of what little I had left after the dot com crash and held thru 2005 for 700% gain. I did that because I was so fed up with the falseness of companies that attached a dotcom after their name to make their stock price go up 1000%. I knew Apple would only tolerate perfection in the products they introduced. Most of the "failures" they had before this were because the market actually wasnt yet ready for them.

The problem with Apple now is its has become a large cap stock. In addition the acceleration in sales growth can not be maintained forever. So the analysts who scale back their expectations will be correct at some point, but that point has not yet come. Microsoft has been focusing on trying to keep sales up in leading markets... now reduced to the emerging markets... they too must see the writing on the wall.

What is really strange to me is that investment firms are still recommending Microsoft - and as a good long term investment.
Apple will see the demise of Microsoft... and this is not so far off now. Utterly foolish to misread the coming of the now obvious.

Jun 17 08:56 PM

[Frank Castle:]

Can we stop with all the 3G is $99. You cannot walk into a Apple or at&t, best buy etc and buy the 3G for $99 dollars. ONLY if you are a new sub to the carrier. A $99 iPhone is a myth just like a free cell phone. So instead of paying 1800 over the length of your contract, you pay 1600 .. hooray the masses should line up for that.

Walmart shoppers BTW likely lack the credit to qualify for the plan needed for iPhone so until at&t offers iPhone on PAYG there will be no run up.

Whats amusing reading iPhonebois is they cannot comprehend not every WANTS an iPhone. When Apple strikes carriers deals with Vzw, Sprint, TMO call me until then their capped by expensive voice/data plan and a carrier that isn't an option for many people.

What I really love is reading iPhone users hammer at&t who the call quality sucks, they get nickeled and dimed etc and then tell their friends to come on over and join the fun. Anyone with half a sense buys the iTouch and keeps a cheap cell phone till this all shakes out and carriers lower data plans.

Jun 17 09:20 PM

[AdamC:]

These guys or should I say clown are truly amazing.

They tooted that Apple should make netbooks because that's where the market is but netboooks are good for market share but lousy at making money.

Then they say Apple should cut the price of their computers then they say their margins will be hit.

They say iPhone should be sold at $99 and now they say it is not good enough.

They are a schizophrenic bunch who talk rot and yet make a great living and all their wrong guesses which impact the market are not taken to task by the SEC.

Jun 17 09:21 PM

[Constable Odo:]

They definitely said that a $99 iPhone would really increase market shares and now they're saying it won't help at all. This is BS. The iPhone 3G S will sell like crazy once people see the video recording which is outstanding and the widescreen keyboard which should stop some complaints about the difficult typing. The new business apps and new games will only add to the 50,000+ apps. Nokia is going to continue to lose smartphone share. If RIM can do well, then so will the iPhone. The $99 iPhone will certainly induce new users to jump on the smartphone bandwagon especially with Software 3.0. And I'm sure it will push the Generation 1 iPhone users to at least move to a 3G.

These analysts just don't know what they're talking about as far as iPhone sales. Are they completely ignoring the fact that China Unicom will be selling iPhones relatively soon. If iPhone sales are going to be soft, then I'd hate to see what other competitor handset sales will be like. It's an insult that analysts are saying RIM is going to have a BlackBerry blowout sales quarter and iPhone sales will be soft. Nothing of the sort has been indicated that iPhone sales will be weak.

Developers are all running to the iPhone platform and they're probably not stupid enough to believe that iPhone sales will be "soft" by any means.

Jun 18 12:22 AM

[SJD:]

I would not bet against Apple. Even that analyst dork quoted in the article has a hold rating with a price target $13 per share ABOVE current price.

Go figure.

Jun 18 10:27 AM

[Infinite loop:]

I just love it when the ANALysts use words like "maybe" and " we believe" and "possibly". It gives them an out when their fortune telling runs afoul.

Watch those adjectives. They tell all.

Jun 18 11:56 AM

[A little Slow:]

Let's see now. "Sales slowed down for a short period before a new upgrade is scheduled to be released."

Hm. Fancy that. Apple Buyers waited to get the new one. I am just stunned. Apparently PC users never change their buying behavior just before a new release.

So tomorrow there will be a big surge in sales, both at ATT and Apple Stores. A surge that will last for weeks. ATT has already indicated that they are sold out for weeks. And now you can get an entry level model for $99.

In the last two years Apple has sold 30 million iPhones. I'll bet Apple will sell more iPhones in the next two weeks than Palm will sell in the next six months. And the next thing this analyst will be doing is RAISING his estimates of Apple sales.

TO THE ANALYST: Flucuations in sales just before a major product change is not a significant event.

Jun 18 12:31 PM