Here’s Another Confidence Killer for Apple

camera_hero iphoneConcerns that Apple (NASDAQ:AAPL) may not be selling enough iPhones this quarter spilled over into Tuesday after Nomura Equity Research slashed its price target on the company’s stock from $660 to $530. Analyst Stuart Jeffrey, who also cut earnings and revenue predictions, wrote in a note to clients that the newer targets were to “reflect signs of weaker-than-expected iPhone 5 sales.”

Apple fell 3.6 percent on Monday after multiple news reports that it had cut iPhone 5 component orders in half in anticipation of a slower March-ending quarter.

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Cautious About Margins

“We are more cautious than sell-side forecasts for revenue and gross margin, mostly driven by our expectation that iPhone gross margins and average selling prices are unsustainably high,” Jeffrey wrote, while reiterating a Neutral rating. “While the timing and extent of any decline is still uncertain, we retain our conviction that margins will fall.”

The analyst cut his iPhone unit sales estimates by 2 million to 48 million for the December quarter, by 4 million to 39 million for the March quarter, and by 9 million to 157 million for the full year. He increased his forecasts for iPad unit sales by 1.8 million to 21 million for the first fiscal quarter, by 2.4 million to 20.6 million for the second, and by 9.7 million to 89.6 million for the full year. There were more cuts…

He increased his profit prediction for the year’s first quarter to $12.84 a share from $12.78 a share, but cut its second-quarter estimate to $11.25 a share from $11.96 a share. He trimmed his first-quarter revenue estimate to $53 billion from $54.2 billion and the second-quarter revenue estimate to $44.1 billion from $46.7 billion.

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Asia Problem

Apple faced a growing problem in Asia and needed a product that doesn’t sell at a premium price, the analyst added. “We believe that Apple has to launch a pre-paid iPhone in order to retain relevance in emerging markets,” he wrote. “[Google (NASDAQ:GOOG)] Android is becoming so dominant in Asia that it is attracting the majority of application development. If Apple does not compete, then it will be trying to sell the iPhone at a premium price despite having an inferior hardware specification (e.g., screen size) and inferior application ecosystem.”

Jeffrey even saw potential downside to $400 on gross margin declines, but that risk was currently limited by possibly low multiples and the possibility of a dividend increase, he added.

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