Positives And Negatives Apple Investors Must Know, According To UBS

Courtesy of Benzinga.

Steven Milunovich of UBS maintained a Buy rating and $150 price target on shares of Apple in a new research report on Monday. The analyst highlighted two negative concerns he has moving forward, but cited five positive trends that outweigh his concerns.

The negative concerns include: 1) demand for the 6s is lower than for the 6 a year ago and 2) upgrade cycles are lengthening.

The positives include: 1) Apple is the only brand expected to gain market share, 2) the mix continues to shift toward larger screens and higher memory, 3) 20 percent of U.S. users expect to use Apple’s Upgrade Program, 4) China demand remains strong and 5) a projected 4 percent unit growth for iPhone devices in fiscal 2016 appears “conservative.”

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2 Main Concerns: iPhone 6s Demand, Upgrade Cycles

According to Milunovich’s study, around 31 percent of the user base upgraded to the 6 line as of the September quarter, while an estimated 280 million user base have yet to upgrade. Even allowing that some users will upgrade to the 5s rather than the 6, the 31 percent finding “does not strike us as high.”

The study also noted that 22 percent of consumers intend to purchase a handset in the next six months. This marks a decrease from the 24 percent recorded in the second quarter and 29 percent a year ago. As such, the analyst concluded that the average handset life is increasing across all regions.

The Positives

Apple To Gain Market Share

Eighty-two (82) percent of Apple’s customer plans on repurchasing an Apple device when they next upgrade their device. This rate happens to be the strongest among all manufacturers and helps Apple defend its market share.

Meanwhile, the study also showed that Apple is the only brand expected to gain market share across all regions. For example, 28 percent of respondents in China said their current smartphone is an Apple device, but 41 percent said their next smartphone brand will be an Apple device.

Favorable Mix Toward Larger Screen, Memory

Milunovich continues to see a trend toward users buying larger screen devices with higher storage levels – a favorable mix given the higher margins.

The analyst noted that CIRP data indicated that base model iPhones declined to less than 40 percent of units, down from 55 percent a year ago. The mid-range variants have also gained the most though some data does suggest gains at the $200 step-up level.

Upgrade Program ‘Striking A Chord’

Milunovich stated that Apple’s new iPhone Upgrade Program appears to be “striking a cord” and has gathered “solid interest” with 20 percent of respondents stating they are likely to take part in the installment plan.

China Remains ‘Strong’

Milunovich’s survey suggested that while overall demand for the iPhone 6s is less than the iPhone 6, demand remains “strong” in China. In fact, out of all regions surveyed, interest in the 6s is the strongest in China, while interest in the older iPhone 6 is “even higher.”

2016 Initial Estimates Could Be Conservative

Finally, the analyst stated that based on his survey, his estimated fiscal 2016 upgrade figure for iPhone devices is 166 million units, an 11 percent increase from the estimated 149 million units in fiscal 2015.

Milunovich concluded that Apple’s current momentum, when coupled with the survey results, suggests continued share gains for Apple implies that his outlook may be too conservative.

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