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iPhone 5: From record-breaking launch to Wall Street’s whipping boy

iPhone 5 Demand Weak

Apple (AAPL) sold a record-breaking 5 million iPhone 5 handsets during the device’s debut weekend but despite a strong start, the sleek new smartphone has become Wall Street’s whipping boy in recent weeks. Following reports that Apple slashed iPhone 5 component orders in half due to weak demand, numerous institutions have cut their estimates on Apple’s performance in fiscal 2013 and 2014, often citing their own iPhone 5 checks when relaying the news to clients. Is this a case of stock manipulation as a number of Apple bloggers have suggested, or is there now enough smoke to assume there really is a fire?

Nomura on Tuesday became the latest in a long line of firms to cut its price target on Apple shares. Nomura analyst Stuart Jeffrey dropped his target to $530 from $660, again citing weak iPhone 5 demand and increased pressure on Apple’s margins.

“To reflect signs of weaker-than-expected iPhone 5 sales, we have cut unit estimates by 5% in FY13E and by 8% for FY14E,” the analyst wrote in a note to clients on Tuesday. “Our scenario analysis shows that if iPhone gross margins fall from a recent high of 55% (estimated) to 45%, EPS for FY14E and FY15E will likely peak at $46 to $48, with $4-5 downside if margins fall to 40% – the historic peak for mobile phone vendors. Our blended average fair value based on falling iPhone gross margins comes to $495 – $579 (ex / with excess cash), with potential downside to $400 and upside to $660.”

Adding to investors’ continued concerns are a half-dozen independent reports suggesting Apple plans to launch a new cheaper iPhone model later this year. The move would likely help Apple to better address emerging markets where it would finally be able to compete with low-end Android handsets, but it would also put a serious squeeze on Apple’s margins.

Apple is expected to report a huge holiday quarter next week, posting a quarterly profit somewhere in the ballpark of $13 billion. We could still be in for a bloodbath if Apple misses Wall Street’s consensus for the third consecutive quarter though, and Apple’s fiscal Q1 iPhone shipments will be under the spotlight like never before.[bgr-post-bug]

Zach Epstein

Zach Epstein has worked in and around ICT for more than 15 years, first in marketing and business development with two private telcos, then as a writer and editor covering business news, consumer electronics and telecommunications. Zach’s work has been quoted by countless top news publications in the US and around the world. He was also recently named one of the world's top-10 “power mobile influencers” by Forbes, as well as one of Inc. Magazine's top-30 Internet of Things experts.

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