Apple Inc. is the world’s most valuable company and has a massive cash stash, but some analysts fear a prolonged period of weak innovation has set the company up for a “decade-long malaise.”
iPhone sales are expected to peak with the release of Apple’s 10th anniversary iPhone next year, according to models from Oppenheimer analyst Andrew Uerkwitz, who predicts 245 million iPhones will sell in Apple’s 2018 fiscal year. That would reflect an increase of 9% from the fiscal 2017 FactSet consensus estimate of 225 million, and an increase of more than 15% from the fiscal year that ended in October.
However, Uerkwitz believes next year’s iPhone cycle will present “one last growth hurrah” before consumers begin to drift away from the high prices Apple commands for it smartphones. Apple may struggle to raise iPhone prices meaningfully beyond the next cycle as it deals with fewer hardware breakthroughs and a narrowing performance gap between the iPhone and its closest premium-tier competitors, Uerkwitz wrote.
“The risks to the company have never been greater,” said Uerkwitz, who has a perform rating on the stock. “We believe Apple is about to embark on a decade-long malaise.”
Another analyst, Monness Crespi Hardt’s James Cakmak, echoed similar bearish sentiment Monday, warning about changing consumer behavior that have lengthened upgrade cycles, and competitive threats from the likes of Alphabet Inc. and Amazon.com Inc. in the phone, video-streaming and augmented-reality realms.
“Apple won’t have it easy again for a while, if ever,” Cakmak said.
One issue is an increase in demand for used and refurbished phones. Cakmak warns that Apple’s refurbished-phone program may cannibalize new-device sales, which would further depress average selling prices. Trends tracker IDC said Monday it expects the global used smartphone market to nearly triple from 2015 through 2020, which could impact original equipment manufacturers and mobile operators like Apple and Samsung Electronics.
Last month, Apple reported its first ever annual decline in iPhone sales. Its shares have risen 2.3% in the past three months, virtually in-line with the Dow Jones Industrial Average, but have underperformed in the past year, falling more than 6% versus a 6% gain for the blue-chip index.
Despite the bearish calls, the average rating on Apple stock is the equivalent to buy, while the average target of $130 implies 16% growth from Monday’s closing price.
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Bullish analysts have more confidence that Apple can maintain a stranglehold on the market for high-price smartphones. Canaccord Genuity’s Michael Walkley, who reiterated a buy rating and $140 price target Monday, said he expects Apple to “extend its leading market share of the premium tier smartphone market,” despite competition from Google’s Pixel phone and other Android phones. Samsung’s disastrous Note 7 recall has also helped this quarter, he said.
Others have been bullish on Apple’s reported efforts on smart cars and augmented reality. Apple Chief Executive Tim Cook has been optimistic about AR and has secured a number of acquisitions over the past two years to help accelerate those plans. While Cakmak said Apple is trailing both Google and Amazon, Upload VR’s entrepreneur in residence, Robert Scoble, citing sources, recently reported that Apple is working on a set of mixed-reality glasses that could be ready in 10 months.
Still, other uncertainties loom, such as the new White House administration. While president-elect Donald Trump’s proposed repatriation tax “holiday” would make it easier for Apple to return cash to the U.S. and put that money to work, other Trump policies that might make Apple build more iPhone components in the U.S. could offset tax-related financial benefits.
Last week, Japan’s Nikkei Asian Review reported that Apple reached out to supplier Foxconn Technology Co. Ltd. about studying the possibility of moving some production to the U.S., which Cakmak said might have negative implications.