Analyst Downgrades Apple From Buy to Neutral

BTIG's Walter Piecyk has downgraded Apple from BUY to NEUTRAL even as other analysts up their targets to $1000, notes BusinessInsider.

Piecyk believes that Apple has one more big quarter left but then wireless carriers will begin to fight back over the huge subsidies that are squeezing their margins. Specifically, AT&T will institute new policies that will stunt the pace of customer upgrades, slowing iPhone sales. Piecyk says Q3 will bring a decline in sales and revenue $1 billion below current consensus.

We expect quarterly upgrade rates to contract further in calendar Q2 (Appleʼs Fiscal Q3) based on typical wireless seasonal trends and likely increased speculation on the anticipation of a new iPhone in the second half of the year. Recall that investors were surprised by Appleʼs Fiscal Q3 results last year because of the slowdown in iPhone sales ahead of the expected launch of the iPhone 4S. We also do not expect a material broadening of market launches for the product like what was seen in the first calendar quarter. Specifically, we expect Appleʼs iPhone sales to drop to 27.5 million units in Fiscal Q3 resulting in a revenue estimate that is $1 billion below consensus. Investors have grown accustomed to upward revisions of revenue estimates by analysts after Apple reports strong quarterly reports.

As for AT&T, we have forecast that its upgrade rate will drop to 8% in Fiscal Q3 resulting in 3.25 million iPhones sold during the quarter, which is down from the 4.2 million phones we expect in Fiscal Q2 and the 7 million sold in Fiscal Q1. If AT&T customers start to expect a new iPhone in June or July, the upgrade rate could dip even lower. In 2011, the calendar Q3 upgrade rate fell to 7.5% ahead of the launch of the iPhone 4S. That is below our 8% estimate for Fiscal Q3. Also keep in mind that our estimate of total smartphones sold by AT&T of 26.7 million is above the 25 million in smartphone sales the company has cited in order to meet its 40% wireless EBITDA margin target and ability to grow earnings.

Piecyk also believes there will be no Apple TV this year, that the Chinese market is overrated while Apple's products are priced so high, and that revenue from the iPad will fall further behind revenue from the iPhone.

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