Analysts: Watch Out for Falling iPhone Sales

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Analysts at Societe Generale downgraded shares of Apple (NASDAQ:APPL) to hold from buy on Tuesday. Their fear is slowing sales of the iPhone 5S — the latest iteration of the company’s flagship smartphone that introduced the biometric authentication application, Apple ID Touch, a next-generation CPU, the M7 motion-tracking chip, and an improved camera. Technology reviewers at CNET called the device “the fastest and most advanced Apple smartphone to date,” but noted that it was not a “required upgrade.” That commentary suggests, as does Tuesday’s downgrade, that the iPhone 5S may not be the obvious choice for the first-time smartphone buyer as early editions of the device were. Apple is no longer the clear frontrunner; its rivals have caught up.

“Usually, we would expect Apple to outperform the market in [the fourth-quarter] as the company has just issued new products,” wrote the analysts in a research note acquired by MarketWatch. “However, our research suggests that volumes may come in below expectations.” Société Générale’s Andy Perkins explained that the firm has calculated Apple sold 52 million smartphones in the final quarter of 2013, with the iPhone 5S selling much better than the its cheaper counterpart. In fact, he postulated the company has sold 4 iPhone 5S units for every iPhone 5C. But even though the lower-cost iPhone 5C, which features a colored polycarbonate shell, is selling fewer units, the device is still expected to negatively impact results. “With the lower-priced 5C model in the mix, our assumed average selling price for [the first-quarter of 2014 is 4 percent] lower than the previous year,” Perkins added.

Perkins and his team of analysts decided to stick to a price target of $575 for shares of Apple. The stock opened on January 21 at a price of $540.99, making their target price an increase of a little more than 6 percent. Already, in the past three months since the debut of the company’s latest devices, Apple investors have bid shares up approximately 7 percent. However, if demand falls faster than expected or if competition significantly intensifies — thereby impacting the iPhone maker’s pricing and margins — the stock may not reach that target.

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