AAPL: Citi Cuts Estimates, Target to $480 on Slowing iPhone, iPad Demand

By Tiernan Ray

Citigroup?s Glen Yeung is among three analysts who today cut their estimates and price targets for Apple (AAPL), warning of product gaps and the diminishing returns from the smartphone and tablet market.

Apple shares today are down $5.34, or 1.3%, at $425.80.

Yeung, who has a Neutral rating on shares of Apple, cut his price target to $480 from $500, after cutting the current quarter?s estimate to $40.45 billion, gross margin of 37.9%, and EPS of $9.23 from a prior $42 billion, 38%, and $9.73. He also cut full-year 2013 and fiscal 2014 and 2015 estimates.

Yeung cut his March-quarter iPhone estimates to 34 million from 35 million, below what he thinks is consensus of 37 million. He maintains his June-quarter estimate for 25 million iPhone units, below the consensus 32 million, arguing Apple is losing share as indicated by lower ramps in component production:

In conducting our regular field work with the hardware supply chain, we again find evidence of reduced demand to Apple?s suppliers for iPhone5 related components. While production does not directly translate to sales (for example, we estimate Apple finished 1Q13(Dec) with ~10M iPhone units in inventory), we suspect this is an indication of softer demand for iPhone5 and iPhone4S. To be sure, we expect iPhone5S to be introduced in 4Q13(Sep) (slightly later than our initial expectations of ~June), suggesting iPhone5 production slowdowns now could be clearing inventories ahead of the iPhone5S launch. But with small volumes of iPhone5S expected to be built in 3Q13(Jun) (we estimate 3-4M units), we suspect this effect is minimal (we expect iPhone inventories to be reduced to 5M units from 10M).

Yeung notes he finds ?little evidence? for a cheaper iPhone and sees only the introduction of an ?iPhone 5S? in September, and perhaps a larger unit at the beginning of next year.

He is also concerned about the iPad, and cuts his iPad mini estimate for this quarter to 12 million from 13 million, and cuts the regular iPad to 6 million from 7 million, while conceding that some ramp-down in production may be because of new model introductions:

Our fieldwork also suggests some reduction in demand for 10? iPad related components [?] To be sure, iPad Mini is undoubtedly cannibalizing 10? iPad sales (for example, we estimate 7? tablets will exceed 10? tablets in production in C1Q13), but our checks now suggest iPad Mini production is expected to flatten in 3Q13(Jun). We recognize that product transitions in 7? models (potentially 2 models in 4Q13(Sep): Retina Mini 2 and non-Retina Mini 2), may be contributing to reduced production in 3Q13(Jun). Nonetheless, we see risk to consensus estimates.

Previously: AAPL: Berenberg Cuts to Sell Along with Samsung on Cheap Phone Shift, March 6th, 2013.

Source: http://feedproxy.google.com/~r/barrons/techtraderdaily/feed/~3/s1KEnHf07Vw/

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