UBS Analyst: Focus on User Experience Is Crushing Apple

Source: Apple.com

Ever since Apple (NASDAQ:AAPL) debuted its new iPhone lineup on September 10, the company’s stock has dropped, and analysts are scratching their heads over the unimpressive iPhone 5S and iPhone 5C.

Particularly disappointing was the iPhone 5C, which was expected to be priced between $300 and $400 but ended up costing $549 without a contract. The device was seen as a key piece of Apple’s deals with big Asian wireless carriers such as Japan’s NTT DoCoMo (NYSE:DCM) and China’s China Mobile (NYSE:CHL).

Cheap devices running on Google’s (NASDAQ:GOOG) Android operating system have been incredibly popular in emerging markets because of their low cost — consumers there usually must pay full price for devices instead of receiving discounts through signing contracts, as is more common in the U.S.

On Monday, in a report from Barron’s, UBS analyst Steve Milunovich gave some more reasons as to why he decided to downgrade Apple’s stock to Neutral from Buy. “It’s possible that Apple is becoming the Digital Equipment of phones, delivering improved technology for its best customers but ignoring the growth below because the company does not want to ‘compromise the user experience,’” Milunovich said while speculating about Apple’s strategy with the iPhone 5C.

Milunovich noted investor confusion about the company’s strategy with the iPhone 5C and the possibility that smartphones are reaching what’s called a “good enough” phase, in which the technology basically meets all the needs of consumers and high-end companies and are therefore at risk of losing market share from lower-end businesses that offer similar products at a much lower price.

There are some signs, however, that Apple’s fortunes could soon shift despite its disappointing performance in the wake of its much-anticipated product unveilings last week. Last week, the stock crossed a technical threshold known as the “golden cross,” which occurs when the 50-day moving average breaks the 200-day moving average; it is typically an indicator that the stock will soon rise in value.

Milunovich also noted that Apple could be banking on a rising middle class in emerging markets that will soon have enough cash to afford the company’s products. He ended his report with the optimistic observation that “Apple’s bent is to innovate, not protects its low-end flank.”

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Follow Jacqueline on Twitter @Jacqui_WSCS