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Analyst cuts AAPL rating on iPhone subsidy backlash, estimates $1B earnings miss

post #1 of 95
Thread Starter 
BITG Research's Walter Piecyk cut his rating of AAPL stock from "buy" to "neutral" in a note to investors on Monday, saying that telecoms are growing weary of paying high subsidies for the iPhone with returns that don't match Apple's high margins from the handset.

An AAPL downgrade hasn't been seen in quite some time as some analysts say the company will become world's first trillion-dollar corporation by the end 2014, but Piecyk asserts that wireless operators are looking to make changes that may lead to a drop in iPhone shipments next quarter.

Piecyk asserts that after raising average revenue per user (ARPU) by churning customers with subsidies, telecoms are going to begin contracting in subsidy payouts which will leave Apple with less iPhone sales in its third fiscal quarter.

"Operators, unwilling to stall the pace of ARPU growth, offered generous upgrade policies including some that enabled a fully subsidized phone upgrade only one year in to a two year contract," explains Piecyk. "We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise to post-paid and pre-paid operators, alike."

At issue are the "aggressive" upgrade policies instituted by the world's carriers. For example, with the latest iPhone 4S launch, some carriers offered upgrade subsidies for customers who were only about one year into a two-year contract.

Piecyk notes that AT&T is looking to adopt stricter upgrade policies to up margins and stop hemorrhaging cash in subsidy costs. If other major carriers follow suit, iPhone shipments may be affected as consumers may not be willing to pay full price for the handset. The carrier's margins are currently at a six-year low.

“We expect post-paid wireless operators to remain firm in their plan to stunt the pace of phone upgrades in 2012 and we expect to see some initial evidence of their success in the current quarter,” Piecyk says.

In regard to how greatly this will affect Apple, Piecyk expects that "in the United States, we expect iPhone sales to decline 4 million sequentially to 9 million with the largest impact coming from AT&T, Apple’s largest customer." This would relate to a worldwide drop in sales of 27.5 million units in Apple's fiscal quarter third quarter, "resulting in a revenue estimate that is $1 billion below consensus.”


AAPL stock closed up 2.55 points on Monday. | Source: Google


Wireless companies are no doubt taking an upfront hit when subsidizing the iPhone, however data has shown that they are willing to take a short-term loss for longterm gains. Sprint, for example, is planning on surpassing the purchase terms of an already costly $15.5 billion contract with Apple as it expects to make back the loss on subscriber revenue.

Adding to his iPhone assertions, Piecyk dismisses the rumors of an Apple HDTV launch in 2012 and downplays the Chinese iPad market citing the tablet's high price point.

Piecyk qualifies his bold statements by saying that Apple is likely to announce another great quarter when the company holds its earnings call on April 6 from strong iPhone sales in China.

"Of course, our thesis will not be supported in the current quarter as the pent up demand in China and the launch of the iPhone in 30 additional markets is likely to drive strong sales that will offset the sequential declines in other markets," Piecyk says.

[ View article on AppleInsider ]
post #2 of 95
Quote:
Originally Posted by AppleInsider View Post

BITG Research's Walter Piecyk cut his rating of AAPL stock from "buy" to "neutral" in a note to investors on Monday, saying that telecoms are growing weary of paying high subsidies for the iPhone with returns that don't match Apple's high margins from the handset.

An AAPL downgrade hasn't been seen in quite some time as some analysts see the company as becoming world's first trillion-dollar coroporation by the end 2014, but Piecyk asserts that wireless operators are looking to make changes that may lead to a drop in iPhone shipments next quarter.

etc. etc.

In regard to how greatly this will affect Apple, Piecyk expects that "in the United States, we expect iPhone sales to decline 4 million sequentially to 9 million with the largest impact coming from AT&T, Apples largest customer." This would relate to a worldwide drop in sales of 27.5 million units in Apple's fiscal quarter third quarter, "resulting in a revenue estimate that is $1 billion below consensus.

Hmmm... I thought a while back that AAPL would get hit hard after the 2nd quarter (fiscal) earnings. Not necessarily because AAPL deserves it... but these analysts have to earn their keep by getting the stock to drop so that institutions can pick it up a lot cheaper before the holiday quarter. jmho
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post #3 of 95
I'd like to see them back it up by shorting the stock.
post #4 of 95
Quote:
company as becoming world's first trillion-dollar coroporation by the end 2014

I can't seem to locate the word "coroporation" in the dictionary.

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply
post #5 of 95
Quote:
Originally Posted by AppleInsider View Post

Piecyk guesses that after raising average revenue per user (ARPU) by churning customers with subsidies, telecoms are going to begin contracting in subsidy payouts which will leave Apple with less iPhone sales in its third fiscal quarter.

"Operators, unwilling to stall the pace of ARPU growth, offered generous upgrade policies including some that enabled a fully subsidized phone upgrade only one year in to a two year contract," explains Piecyk.

So first he guesses...then he states that it's really the fault of the carriers for allowing upgrades before a contract is fulfilled. It sounds like the problem is really between the carriers for aggressively poaching each other's customers. I tend to have little sympathy for them considering I pay over $100/month for service. That's over $1200/year or $2400/contract. If they can't make up their subsidy of a few hundred dollars (please correct me if I'm wrong about the actual cost of the subsidy and talking out my a**), because they're giving people new phones every 12 months, then that's their own fault, not the fault of the handset maker.
post #6 of 95
This story is of course in no way a plant from the Microsoft/Nokia Loonier $150 million AT&T Marketing budget...
post #7 of 95
Quote:
At issue are the "aggressive" upgrade policies instituted by the world's carriers. For example, with the latest iPhone 4S launch, some carriers offered upgrade subsidies for customers despite only being about one year into a two-year contract.

Piecyk notes that AT&T is going to adopt stricter upgrade policies to stop hemorrhaging cash in subsidy costs. If other major carriers follow suit, iPhone shipments may be affected if consumers aren't willing to pay the premium price of entry.

I don't know what they are talking about. When the iPhone 4 was new, AT&T gave full subsidies to any customer who upgraded to an iPhone 3GS within a year in order to lock in customers ahead of the Verizon iPhone 4 launch a few months later, but after Verizon started selling the iPhone, AT&T rescinded the 1 year subsidy pricing for anyone who wanted to upgrade from the iPhone 4 to the iPhone 4S, forcing customers to wait 18 months. With AT&T this became the norm, yet they still sold out of iPhones.

These geniuses are claiming that thanks to a lack of subsidy pricing for people just 1 year into their contract, it will slow shipments of the iPhone? LOL... While the iPhone market might be closer to saturation in North America, globally the opportunities for iPhone's subscriber growth are enormous. Take that and short it.

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply
post #8 of 95
Troubling news.
post #9 of 95
Quote:
Originally Posted by eksodos View Post

Troubling news.

How can an analyst prediction be troubling news? Apple stock was up today so obviously this one downgrade doesn't mean much to wall street.
post #10 of 95
Interesting thoughts. I wonder if this news story was planted by the carriers, specifically AT&T, to see how the public will react. I was just reading tonight that half of all iPhone sales are upgrades. The iPhone satisfaction rate is very high with most users wanting to stay with an iPhone from articles that I have read over the past year. If one carrier does make it more difficult to upgrade, my guess is that people will walk to another carrier when they can, as long as the reception in their area of use is similar or better than what they presently have.

The one other thought that I had about this and its a crazy one at that, is that Apple could just buy Sprint for a song if the carriers try to be punitive towards Apple with their policies.
post #11 of 95
Quote:
Originally Posted by grover432 View Post

I'd like to see them back it up by shorting the stock.

heh heh....yeah, right in front of a quarterly earnings report no less.
post #12 of 95
Is this guy for real?
I can only please one person per day.  Today is not your day.  Tomorrow doesn't look good either.  
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I can only please one person per day.  Today is not your day.  Tomorrow doesn't look good either.  
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post #13 of 95
I have to say, of all the purveyors of negativity on Apple, this guy at least has a reasonably plausible argument. I think he does exaggerate the impact and ignore compensating growth factors. But at least it is a coherent argument.
post #14 of 95
BTW - don't forget, the stock will drop Thursday and Friday for options expiration.
post #15 of 95
Quote:
Originally Posted by beakernx01 View Post

So first he guesses...then he states that it's really the fault of the carriers for allowing upgrades before a contract is fulfilled. It sounds like the problem is really between the carriers for aggressively poaching each other's customers. I tend to have little sympathy for them considering I pay over $100/month for service. That's over $1200/year or $2400/contract. If they can't make up their subsidy of a few hundred dollars (please correct me if I'm wrong about the actual cost of the subsidy and talking out my a**), because they're giving people new phones every 12 months, then that's their own fault, not the fault of the handset maker.

Exactly. It's not the handset makers fault/problem that the carriers allow upgrades before a contract is complete. As far as subsidies, wouldn't this impact SamsungHTCMotorola too? Verizon has a $350 subsidy for the Galaxy Nexus and Droid Razr Maxx. AT&T has a $350 subsidy for the Galaxy Note. T-Mobile is offering the $599 Galaxy S II for free with a 2-year contract. This includes a $320 instant rebate, $200 mail in rebate and a $79 web only rebate. These carrier subsidies impact more than the iPhone.
post #16 of 95
Quote:
Originally Posted by beakernx01 View Post

So first he guesses...then he states that it's really the fault of the carriers for allowing upgrades before a contract is fulfilled. It sounds like the problem is really between the carriers for aggressively poaching each other's customers. I tend to have little sympathy for them considering I pay over $100/month for service. That's over $1200/year or $2400/contract. If they can't make up their subsidy of a few hundred dollars (please correct me if I'm wrong about the actual cost of the subsidy and talking out my a**), because they're giving people new phones every 12 months, then that's their own fault, not the fault of the handset maker.

He's not saying whose fault it is, he's saying that it won't go on forever and when it does stop, it's Apple that sells less phones. I think it's eventually true but I think he's a bit early on this prediction.
post #17 of 95
Surely you jest? This 'analysis' is a joke.
MacBook Pro, iMac, iPad 2, iPhone 4S
Please visit my simple and personal blog at www.simbarhoum.com
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MacBook Pro, iMac, iPad 2, iPhone 4S
Please visit my simple and personal blog at www.simbarhoum.com
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post #18 of 95
Quote:
Originally Posted by jmmx View Post

I have to say, of all the purveyors of negativity on Apple, this guy at least has a reasonably plausible argument. I think he does exaggerate the impact and ignore compensating growth factors. But at least it is a coherent argument.

You're kidding right? This is a weak, circular argument, as rhetoricians know. Weak.
MacBook Pro, iMac, iPad 2, iPhone 4S
Please visit my simple and personal blog at www.simbarhoum.com
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MacBook Pro, iMac, iPad 2, iPhone 4S
Please visit my simple and personal blog at www.simbarhoum.com
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post #19 of 95
Quote:
Originally Posted by grover432 View Post

I'd like to see them back it up by shorting the stock.

Oh, of course he won't do that....

And by the way, here's what this guy said earlier this year:

Quote:
Back in December, for example, BTIG’s Walter Piecyk (registration required for link) predicted Apple would sell 30 million iPhones in the December quarter. Now he figures it will sell a record 35 million, thanks to the particularly strong demand in the U.S., showcased by the Verizon number Shammo disclosed yesterday. His rationale: If Verizon’s iPhone sales are that high, then so are AT&T’s and Sprint’s, as well.
“Yesterday, Verizon disclosed it had sold 4.2 million iPhones which is above our estimate of 3.75 million and in early December AT&T referenced strong iPhone sales at the UBS conference which we now estimate translates to sales of 7.0 million iPhones, which was above our estimate of 5.25 million,” Piecyk explains. “We are also raising our estimate for Sprint to over 2.0 million from our prior estimate of 1.75 million. This adds up to more than 13 million iPhones sold in the United States in calendar Q4 2011, up from our August estimate of 10 million.”
That’s a big number, one that means the U.S. will represent almost 40 percent of iPhone sales in the quarter, a big spike over the quarter prior, when the U.S. represented about 26 percent of iPhone sales.
And if it’s in the right ballpark, Piecyk says it means Apple could be on track to sell 125 million iPhones in calendar 2012 — 17 percent more than his earlier prediction of 107 million.

http://allthingsd.com/20120105/30-mi...ry-35-million/

These sad clowns are under no obligation to tell the truth in their little PR fluff pieces, and time after time they've proven the are only out for their own interests... which is what anyone should assume anyway.

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #20 of 95
I'd like to see which carrier decides to make this move first (longer upgrade timeframe). Would be pretty gutsy to risk losing iphone customers to the competition. I equate it to the SALE strategy of some retailers. Once you have regular sales, no one will ever pay full price. They wait until the next sale. These phone companies have already gone down that path, there's no looking back.
post #21 of 95
If dude wants to give me his stock, I'll be glad to take it. AAPL hasn't even begun to rock China. As for carriers refusing to play ball on subsidies, that is years away at the soonest. As long as the iPhone is a must-have, customers will want it, and carriers will have to provide it at a discount in the US, 'cause that's how this market works.

If the carriers take a united stand, they'll be liable for a collusion lawsuit that would end with AAPL owning them.
post #22 of 95
Quote:
Originally Posted by eksodos View Post

Troubling news.

Yeah, because history has shown us that analysts know their heads from their asses when it comes to Apple, right?

Wrong. They've been wrong about.. pretty much everything, all the time, everytime.
post #23 of 95
This fellow's a clown.

1. the time at which you could get an upgrade (without paying full price or ETF) was LENGTHENED and is now 20 months. That's AT&T - no-one else has had iPhone long enough. That's "lengthened", not "shortened".

2. T-Mobile recently said that its competitive position was weakened by NOT having iPhone

3. I'm sure any carrier that wishes can decide to no longer sell/support iPhone. I don't think we'll see a queue for the exit, will we?
post #24 of 95
Since AI refuses to provide the proper context behind these anaylsts who shoot off their mouths without regard for the truth, don't forget about this article. Kinda takes the heat away from all that hot air...

http://tech.fortune.cnn.com/2012/04/...e-under-water/

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

Reply
post #25 of 95
Quote:
Originally Posted by Satorical View Post

If dude wants to give me his stock, I'll be glad to take it. AAPL hasn't even begun to rock China. As for carriers refusing to play ball on subsidies, that is years away at the soonest. As long as the iPhone is a must-have, customers will want it, and carriers will have to provide it at a discount in the US, 'cause that's how this market works.

Or they won't and they will find that folks are fine with buying full priced unlocked phones and going to regionals like Simplemobile for way cheaper service

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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post #26 of 95
They had this guy on CNBC this morning.
He pretty much thinks that the telcos will stop subsidizing JUST the iPhone no other handsets.
It was a whole bunch of if, if, if, if... then, when asked about the future ITV or Apple TV set, he said that he couldn't count on that since there isn't any evidence from Apple that says they are going to make TVs.
WHERE'S THE EVIDENCE THAT THE CELL COMPANIES ARE GOING TO STOP SUBSIDIZING THE IPHONE!?!?!?!?
Analyst.

Oh, and wasn't he the guy that was saying Qualcomm was going to hit $1000/share in the late 90's early 00's? How do people that get it wrong so much get to keep their jobs and bonuses?

Sorry, rant off.
post #27 of 95
Ya know, I wish this fool made a difference so I can pick up some more AAPL but no such luck. Nice try though!
post #28 of 95
What no one bothers talking about is the fact that the high end androids carry as high a subsidy if not more when the carriers have to drop them to 0 dollars to get rid of them.

Analysts don't have a clue how subsidies work with phones. For the record, it was the carriers that started doing this to attract more customers to generate more revenue, not the manufacturers so stop bitching when they manufacturers are charging more than 0 dollars to purchase phones. It is the only industry where the customer purchases a product below cost to get connected to the carriers network.

This was the north american model, other areas in the world, I agree, subsidization is a relatively new thing but in North America it started with the 49.00 startac 3000 ....
post #29 of 95
The analyst makes it sound like the carriers have the option not to offer hefty subsidies. Has he never heard of this thing called 'competition'? Well, yes a carrier has the option not to offer the iPhone subsidies, as long as it's willing to have customers desert them for one who does.

Of course, the carriers can all simultaneously drop their iPhone subsidies and thus avoid customer defections. But they'll have very interesting conversations with the DoJ soon after that.
post #30 of 95
Quote:
Originally Posted by AppleInsider View Post

BITG Research's Walter Piecyk cut his rating of AAPL stock from "buy" to "neutral" in a note to investors on Monday, saying that telecoms are growing weary of paying high subsidies for the iPhone with returns that don't match Apple's high margins from the handset.

An AAPL downgrade hasn't been seen in quite some time as some analysts say the company will become world's first trillion-dollar corporation by the end 2014, but Piecyk asserts that wireless operators are looking to make changes that may lead to a drop in iPhone shipments next quarter.

Piecyk asserts that after raising average revenue per user (ARPU) by churning customers with subsidies, telecoms are going to begin contracting in subsidy payouts which will leave Apple with less iPhone sales in its third fiscal quarter.

"Operators, unwilling to stall the pace of ARPU growth, offered generous upgrade policies including some that enabled a fully subsidized phone upgrade only one year in to a two year contract," explains Piecyk. "We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise to post-paid and pre-paid operators, alike."

At issue are the "aggressive" upgrade policies instituted by the world's carriers. For example, with the latest iPhone 4S launch, some carriers offered upgrade subsidies for customers who were only about one year into a two-year contract.

Piecyk notes that AT&T is looking to adopt stricter upgrade policies to up margins and stop hemorrhaging cash in subsidy costs. If other major carriers follow suit, iPhone shipments may be affected as consumers may not be willing to pay full price for the handset. The carrier's margins are currently at a six-year low.

We expect post-paid wireless operators to remain firm in their plan to stunt the pace of phone upgrades in 2012 and we expect to see some initial evidence of their success in the current quarter, Piecyk says.

In regard to how greatly this will affect Apple, Piecyk expects that "in the United States, we expect iPhone sales to decline 4 million sequentially to 9 million with the largest impact coming from AT&T, Apples largest customer." This would relate to a worldwide drop in sales of 27.5 million units in Apple's fiscal quarter third quarter, "resulting in a revenue estimate that is $1 billion below consensus.


AAPL stock closed up 2.55 points on Monday. | Source: Google


Wireless companies are no doubt taking an upfront hit when subsidizing the iPhone, however data has shown that they are willing to take a short-term loss for longterm gains. Sprint, for example, is planning on surpassing the purchase terms of an already costly $15.5 billion contract with Apple as it expects to make back the loss on subscriber revenue.

Adding to his iPhone assertions, Piecyk dismisses the rumors of an Apple HDTV launch in 2012 and downplays the Chinese iPad market citing the tablet's high price point.

Piecyk qualifies his bold statements by saying that Apple is likely to announce another great quarter when the company holds its earnings call on April 6 from strong iPhone sales in China.

"Of course, our thesis will not be supported in the current quarter as the pent up demand in China and the launch of the iPhone in 30 additional markets is likely to drive strong sales that will offset the sequential declines in other markets," Piecyk says.

[ View article on AppleInsider ]

Mind you this is 1 analyst out of many. He's been saying this for over a year now and look how far Apple's stock has climbed. Over $300 a share climb while he's still predicting some kind of doom and gloom. I'm sorry but Apple's products are doing quite well and the popularity isn't going away anytime soon if at all. Everyone thought the new iPad would do ho hum, instead it has sold better than even the first two.
post #31 of 95
I wasn't aware the carriers were supposed to make money from selling the phones. The carriers sell services... which is what they charge a monthly fee for.

I'm an American... so I only know subsidies. My 16GB iPhone only cost me $200 because Verizon subsidized it. Basically... Verizon then wrote a check to Apple for the remaining $450.

But Verizon does that because they will make it up by me paying a monthly fee over the life of my contract... or at least that's what's supposed to happen.

If that's not working anymore... the carriers need to fix it.

I could certainly afford paying the full $650 for an iPhone.... but not if I'll be paying the same monthly fee as a subsidized customer.

Subsidized:
$200 phone + $90 a month

Unsubsidized:
$650 phone + $90 a month (?)

That doesn't make any sense at all...

If the carriers aren't gonna "finance" new phone sales anymore... then it's back to the drawing board...
post #32 of 95
Quote:
Originally Posted by eksodos View Post

Troubling news.

Sell! Sell!! Sell!!!
post #33 of 95
Any day now. Just you watch. Waiting...waiting....!

If it was not for AI nice interface i would never come to this site.
post #34 of 95
Quote:
Originally Posted by SpamSandwich View Post

... sad clowns ....

Ah, a good synonym for 'analysts'
post #35 of 95
In other news, BITG Research's Walter Piecyk was just fired.
post #36 of 95
Honestly this is right where apple wants us the consumer to be. I can't think of a time people were dedicated to the device rather than the carrier. No longer is it about reception rather than the device your using. Apple is gaining power in this arena. I know it's slightly exaggerating but I really believe this is just the beginning of the I influence they'll have. I personally am no longer married to any telco. They all are the se where I live so it's about the device for me. I'm loyal to apple, not AT&T.
post #37 of 95
If they're losing so much money, maybe they shouldn't be selling the Lumia 900 at such a blatant loss. There's your first mistake. Let the handset stand up on its own, not a $150 million ad campaign.
post #38 of 95
We seem to have lost track of the reason why major carriers practice subsidizing phones in the first place - to lure customers in who might not necessarily afford/care to pay high prices for smartphones UPFRONT, but can tolerate higher fees on a monthly basis. If it has become too costly for them to subsidize, they can always raise the monthly fees which is a more tolerable option than to stop subsidizing which will most likely drive customers away. These CEOs are not stupid and I'm sure they learned their lessons from Netflix.

I think the analyst took a calculated risk in making such a bold move, and in doing so, guarantee to be covered by all news media and got his 15 minutes of fame.
post #39 of 95
Quote:
Originally Posted by Slurpy View Post

Yeah, because history has shown us that analysts know their heads from their asses when it comes to Apple, right?

Wrong. They've been wrong about.. pretty much everything, all the time, everytime.

The analysts have been right one quarter out off the last ten years. Even a monkey throwing darts at a random chart could do better than that.
post #40 of 95
Heres an Anal-ist (no Mispelling) trying to tank the stock 10-20 points so that he can create a buying opportunity for himself

OLD TRICK ...........Thats why he's at the firm he's at.
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