The consumers of iPhones do not immediately let go of their outdated iPhones for a less upgraded one
The brokerage firm, BTIG, disclosed some concerning aspects of the tech giant, Apple Inc. after which the stock underwent a slight fall. The firm believes that the smartphone customers are not ready to surrender their handsets after small intervals of usage.
On Wednesday, the brokerage firm slashed down its iPhone sales estimation for the fiscal years 2016 and 2017 due to the “longer upgrade cycles.” This initiative also had collateral impact on the earnings projections for the current and the succeeding year and the brokerage lower its earning estimation while simultaneously bringing the stock’s price target down from $141 to $130. The price target still is almost 19% beyond the current trading of $109.22.
It is an open secret that the tech giant, for the first time in history, is expecting a sales decline in the current fiscal year. The company has been quite vocal about it but it’s not the only concern –the tech giant’s impending structural change is what has led analysts to lower down their estimations. The structure change is the main deterrent in the pace of upgrades.
In a note to clients, BTIG’s Walter Piecyk cited that for almost all smartphones the upgrade rates dropped in the fourth quarter and are following the same suit in the March quarter. In order to form an opinion on the upgrade rates, Mr. Piecyk compiled the data of the four big carriers including Sprint, T-Mobile US, Verizon Communications, and AT&T.
The analyst believes that such decline might be triggered by likely slowdown at the head of Samsung’s Galaxy S7 launch in March and the progression of sales of the iPhone in Apple stores which is likely to have been ignored by the operators and not factored into their upgrade rates. However, Mr. Piecyk further added, that even then it is definite that the length of the phone replacement cycle in the U.S. is broadening.
For Apple, particularly, consumers have put the onus of slowing sales and lengthening period of upgrades on the “S” cycles. The “S” cycles generally do not have anything more to offer in terms of upgrades and the optimization or the features upgrade come after the cycle changes numbers. In comparison to previous cycles, this year decline had been alarmingly steeper, according to Mr. Piecyk.
The analyst reduced almost 10 million units from both of its iPhone sales estimations for 2016 and 2017. He further projected that in the current fiscal year the techy titan is likely to sell around 210 million of iPhone units while he predicted just a 5% increase in the fiscal 2017 and project the sales of iPhones unit to be around 220 million.
With respect to earnings per share, the brokerage firm’s analyst has predicted EPS of $8.87 for the current fiscal year, 2016, and an EPS of $9.57 for the year 2017. The projections have been respectively brought down by 54 cents and 53 cents. Additionally, according to the analysts’ estimates, carried out by FactSet, the tech titan projected EPS for 2016 and 2017 lays at $8.91 and $9.67 respectively.
Although the data rendered by the phone carriers hints that the upgrade cycle is met with the slight extension however it will still take several quarters and the launch of the next iPhone in order to coherently determine whether the consumers prompting let go of their outdated handsets or not.
