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

Published Jan 15th, 2013 11:00AM EST
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 Executive Editor

Zach Epstein has been the Executive Editor at BGR for more than 10 years. He manages BGR’s editorial team and ensures that best practices are adhered to. He also oversees the Ecommerce team and directs the daily flow of all content.

Zach first joined BGR in 2007 as a Staff Writer covering business, technology, and entertainment. His work has been quoted by countless top news organizations, and he was recently named one of the world's top 10 “power mobile influencers” by Forbes. Prior to BGR, Zach worked as an executive in marketing and business development with two private telcos.