Analyst: Here’s Apple’s Main Problem

apple-ipad-caseApple (NASDAQ:AAPL) may register its first earnings-per-share decline in a decade this quarter despite an expected growth in revenue because a compressed product cycle and squeezed profit margins have come to haunt the company, BTIG analyst Walter Piecyk said on Monday. According to Piecyk, Apple’s attempts to shorten its product cycle have misfired and instead led to its infamous supply chain constraints and a drop in the stock price.

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Piecyk chose to maintain his Neutral rating on the iPhone maker’s stock, saying that while concerns regarding the company’s future were currently discounted because of the lowered share price, he was still wary of moving away from the sidelines.

“We are once again faced with a similar situation that we encountered when we downgraded Apple in April of last year,” Piecyk wrote, according to Barron’s. “The company was about to report a very strong quarter on the back of a successful iPhone launch in China but new risks were emerging, including operator push backs on subsidies and a possible June quarter miss, which drove our decision to downgrade the stock to Neutral…

 

“Less than one year later we are again facing what we expect will be another Apple earnings beat, this time driven by the iPhone 5 launch. And yet we remain hesitant to upgrade the stock given the uncertainty over margins, the impacts of a compressed product cycle, and a March earnings report which might deliver Apple’s first decline in EPS in the past decade.”

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 Piecyk cut Apple’s earnings per share estimate for the December quarter from $15.65 to $14 despite raising his revenue estimate by $2.2 billion to $56.2 billion. He also maintained full-year concerns. The analyst’s iPhone unit sales estimate for the last quarter went up to 50.5 million from 47.5 million, but full-year estimate dropped to 158 million from 160 million. In addition, he cut gross-margin estimate for last quarter to 38.5 percent from 44.5 percent and for the full year to 40.2 percent from 43.4 percent. He also cut his full-year earnings per share estimate to $46 per share in profit from $50 on those margin concerns.

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