Munster: Apple’s 8GB iPhone 5C May Only Have ‘Slight Impact’



Is the Street overestimating the impact of Apple’s (NASDAQ:AAPL) recently introduced 8GB capacity iPhone 5C? In a recent note to investors obtained by Barron’s, Piper Jaffray analyst Gene Munster pointed out that most analysts’ June quarter estimates are too high. Munster believes that Apple’s lower-cost device may only have a “slight impact” on the iPhone maker’s fiscal third quarter.

According to Munster, the analyst consensus for Apple’s June quarter is that sales will increase by 9.5 percent to $38.54 billion. However, Munster believes that Apple’s sales will only rise by 5 percent to $37.23 billion in the company’s fiscal third quarter. Munster maintains an “Overweight” rating and a $640 price target on Apple shares.

“Given that there are no meaningful changes to the company’s product line-up or identifiable seasonal trends heading into June, we believe it is unlikely we see the significant acceleration the Street is currently expecting for Jun-14,” wrote Munster in a note seen by Barron’s. “As a result, we expect June numbers will ultimately need to come down, although we believe the impact may be largely ignored as we head into a more positive news cycle in the back half of the year with new product announcements.”

Unlike the iPhone 4S, the iPhone 5C includes 4G network compatibility. However, Munster pointed out that the new 8GB iPhone 5C does not alter the current pricing structure for Apple’s entry-level device. The analyst noted that the entry-level iPhone in China is actually more expensive this year than it was last year when the iPhone 4 was offered at a significant discount.

“We note that it appears the 4S remains available in those countries. The 8GB 5C is priced between the entry level 4S and the 16GB 5C, thus the entry level price for an iPhone remains unchanged,” wrote Munster in a note obtained by Barron’s. “As a result, while we believe the 5C could be mildly positive for the June quarter, we believe it is unlikely to drive more significant upside similar to what we saw with lower pricing at the entry level in Jun-13. More importantly, we note that in China, Apple stopped selling the iPhone 4 at ~2,500 RMB with the iPhone 4S now the entry level phone at ~3,300 RMB.”

Apple introduced the 8GB iPhone 5C in Australia, China, France, Germany, and the U.K. on March 18. The device retails for approximately $70 less than the previous entry-level 16GB iPhone 5C. According to an Apple spokesperson, the California-based company released the 8GB iPhone 5C in order to attract more consumers who are looking for a cheaper 4G-enabled device. “The mid-tier iPhone segment is growing year over year and the 8GB model provides a more affordable option for markets where LTE is becoming more established,” an Apple spokesperson told ReCode on Tuesday. For this reason, Apple’s 8GB iPhone 5C has not been introduced in the North American market.

Although Munster believes that most analysts are being overly optimistic about the impact of Apple’s 8GB iPhone 5C, he also noted that the inaccurate June quarter sales estimate may become a moot point as investors increasingly turn their attention to Apple’s expected new product debuts in the fall. Here’s how Apple has traded over the past five sessions.


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