A Citi analyst is bearish on Apple shares, citing challenges for the iPhone 5. But Morgan Stanley believes the stock and the phone are still winners.
Apple's prospects are dimming! Wait, the company is poised for a comeback! It all depends on which analyst you choose to listen to these days.
In an investors note released yesterday, Citi analyst Glen Yeung lowered his rating on Apple stock to Neutral from Buy. Citi initiated coverage of Apple last month, issuing a Buy rating based on an expected recovery from the stock's then "near-term trough."
But with the share price now below $500, Yeung now sees the "likelihood of any near-term rally as diminished." Though he expects the stock to eventually rebound, he thinks it will hover around its current range for the foreseeable future.
To back up the downgraded rating, the analyst cited a cutback in supply chain orders by Apple. Such a cutback does show that supply has caught up with demand. But since Apple would be unlikely to cut orders if demand were great, Yeung sees this as a sign that demand is simply "good not great."
Based on supply chain checks, the analyst also found that competition from Samsung is on the rise, creating problems for the iPhone 5.
Yeung wrote that there's healthy demand for the iPad Mini -- but that it's coming at the expense of the iPad 4. Again based on supply chain checks, he expects iPad Mini production to rise to 12-14 million units in the March quarter. At the same time, production of the 4th-gen iPad is likely to drop to 5-7 million units. Apple, of course, continues to face competition from other tablet vendors.
"More broadly, we view tablet innovation as increasingly difficult, opening room for alternative solutions to iPad and creating risk of further market share loss," Yeung said. "Our survey here shows that tablets under $300 are driving the majority of incremental demand as compared to six months ago."
Apple's longer-term prospects look more promising, as the analyst cited the impact of several potential new products next year, including an iPhone 5S in the second quarter, a Retina Display iPad Mini in the second half, an iPad 5 in the second half (designed to compete with ultrabooks), and a large-screen iPhone or an iPad with a phone in the second half.
Meanwhile, Morgan Stanley analyst Katy Huberty painted a rosier near-term picture for Apple in a report out this morning. Demand for the iPhone and iPad remain strong, she wrote.
Based on a consumer survey, anticipated iPhone sales in the U.S. for the fourth quarter have beaten Morgan Stanley's forecast. And the iPad has retained a stable 50 percent market share despite expectations of a drop next year.
"A greater percentage of consumers plan to purchase the higher priced iPhone 5 as compared to iPhone 4S mix a year ago," the analyst said. "iPad share is expected to remain at 50 percent, better than our forecast of a six-point share drop in 2013 and despite more low-priced offerings from competitors."
As a result, Huberty expects Apple's share price to push higher and forecasts a 12-month target price of $714 -- coincidentally, just a tad above the stock's all-time high of $702.10, which it hit on Sept. 19.