updated 06:30 pm EST, Thu February 20, 2014
Ignores developing markets, or Apple's other products
There is a tendency among analysts to think of Apple as only "the iPhone maker" and ignore its other products and services, feeling that the fortunes of its most popular and profitable product -- the iPhone -- is the key to the company's overall health, at least in terms of its performance on Wall Street. Barclay's analyst Ben Reitzes told investors in a memo on Thursday that he expects AAPL to stay within a narrow range for the next two years.
Comparing Apple's stock to that of Microsoft -- which has remained fairly stagnant for more than a decade -- Reitzes blamed his prediction on a "mature" smartphone market (presumably referring only to North America and perhaps Europe: there is plenty of evidence of smartphone growth in developing markets, for Apple and other competitors) and his belief that as Apple continues to add new features to its future iPhones, that "margins will be squeezed" due to the cost of such things as "sapphire glass, curved glass and new batteries." He further doesn't expect any new products from Apple -- such as the rumored iWatch or upgraded and/or overhauled Apple TV concepts -- to do well enough in their first years to alter the overall sales picture.
As a result, Barclays has downgraded AAPL from "Overweight" to "Equal-weight," with a target price of $570. The company believes that margins on iPhones have peaked, and that "the law of large numbers" means that Apple is unlikely (in their view) to outperform expectations by a wide margin again, given the familiarity and feature maturity of its best-selling product.
Critics would point out that Reitzes appears to be ignoring signs of significant growth in iPhone sales in China, Russia and other markets, as well as the continuing rise is tablet sales as consumers continue to ditch traditional desktop and notebook PCs, particularly in the enterprise sectors. Reitzes also appears to be discounting the growth of both Apple's iTunes-related services as well as the slow-but-steady uptick in Mac sales as part of the company's overall bottom line.
He may also be dismissing the possibility of a 2014 "surge" of upgraders when the iPhone 6 comes out, as iPhone users are notoriously loyal to Apple, and millions of iPhone 5 early adopters will see their contracts end this year. Finally, Apple is still aggressively buying back its own stock, which could continue to goose the valuation of the remaining stock across the next year. Given the fluctuations of AAPL over the past two years, Reitzes' vision of a narrow trading range across the next two years seems unlikely to long-time AAPL stock watchers.