Is the iPhone Hurting Apple?

A survey that found customers were increasingly shifting to cheaper iPhones with less memory has prompted UBS analyst Steve Milunovich to cut his price target on Apple’s (NASDAQ:AAPL) stock from $700 to $650. Milunovich maintained his Buy rating on the company, but also trimmed his sales estimates for both the current fiscal year and the next.

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The Consumer Intelligence Research Partners survey found that average demand for storage had fallen from around 30GB with the iPhone 4S to 20GB with the iPhone 5. Also, fewer customers were opting for the 64GB models of the newer phone and demand for older models grew from 33 percent in the 4S product cycle to 50 percent in the iPhone 5 cycle, MarketWatch said.

According to the analyst, the data suggested that the iPhone’s gross margin could suffer 8 to 10 points because of the downward product shift and higher costs of launching the new phone. That would, in turn, lead to a 2 percent to 6 percent drop in average iPhone selling prices in the next three quarters. He cut his profit prediction for the fiscal year 2013 to $44.68 a share from $47 per share and for fiscal year 2014 to $52.80 per share from $55.85 per share.

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“We maintain our Buy rating in the belief that risk-reward is favorable given improving growth, a China Mobile (NYSE:CHL) deal by C4Q, and skepticism about innovation,” Milunovich wrote in a note on Tuesday.

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