BMO Capital Takes a Hatchet to Apple (AAPL) after Asia Visit

December 17, 2012 9:20 AM EST
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BMO Capital cut their price target on Outperform-rated Apple (NASDAQ: AAPL) from $730 to $670 and reduced estimates following a five day Asia visit and meeting with 32 companies.

"We received both positive and negative comments on Apple in Asia, and return from Asia a bit more negative on Apple. On the positive side, we think the iPhone 5 launch has started well with both China Telecom and China Unicom. China Unicom sold 300k iPhone 5 in pre-orders. Contacts we met with seemed very encouraged by the iPhone 5 launch in China, which happened last week, saying the launch was better than the iPhone 4S. We also offer the negative views from our trip to Asia for Apple – 1) China Mobile feedback, 2) iPhone 5 primarily as a replacement sale, and 3) stronger competitive lineup."

The firm does not think China Mobile will launch with Apple until 2HCY13. "We had previously thought China Mobile would formally launch with Apple in the June 2013 Q, at a time when Apple will likely face waning demand from the global iPhone 5 launch. We think the iPhone 5 launch at China Mobile would be based on TD-LTE network, which is still being built out. China Mobile has indicated they will have 20k LTE base stations in place by the end of CY12, and 200k by the end of CY13. Further, we do not think China Mobile would be willing to sign a deal with Apple on the same terms and conditions as China Telecom or China Unicom had. China Mobile does not want to sacrifice margins for growth. We believe Apple is seeking an economic package that is more than what Samsung receives on the very popular Galaxy S3."

The firm did hear feedback that Apple is working on a low cost iPhone.

The firm lowered estimates for iPhones, iPads and Macs, with the largest impact driven by assumption of lower ASPs for iPads by about $20/unit in CY13, since they think the iPad mini is selling well.

The firm cut FY13 iPhone estimates from 171.5 to 165.5 million, iPad from 78.5 million to 77 million. For FY14 the firm cut iPhone estimates from 205 million to 196 million and iPad fro 103 million to 101.5 million.

The firm cut FY13 revenues from $196.38 billion to $189.57 billion and EPS from $48.73 to $47. For FY14, the cut revenues from $226.27 billion to $218.8 billion and EPS from $60.89 to $57.85.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $509.79 yesterday.

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