Apple (AAPL) Bear Warns Investors About 'iNsanity'

Berenberg analyst Adnaan Ahmad, an Apple (NASDAQ: AAPL) bear, maintained his Sell rating on the stock and reiterated his price target of $60. Ahmad discussed Apple's ambitions in the auto industry and reiterated his view that it needs to move beyond iPhones into an industry large enough to make a dent to its revenue. Previously, Ahmad suggested Apple should buy Tesla (Nasdaq: TSLA).

"Well, taking it to a high level, if we believe that in a 5- to 15-year horizon driverless and autonomous cars will be all the rage, then essentially these vehicles will be “connected computers”, based potentially on a horizontal industry structure similar to what we have seen in the PC and smartphone sectors," said Ahmad.

"Taking a leaf out of history here, we can envision a business model through which Google (Nasdaq: GOOG)– and/or another operating system – becomes the leading platform for driverless cars in the same way that Windows and Android have dominated, respectively, PCs and smartphones. The hardware OEMs (read auto OEMs) would therefore become the Dells, HPs, Samsungs and Lenovos of this world," continued the analyst.

"Now, in both the smartphone and computer industry, Apple was an exception as it aims to be vertically integrated. So, maybe it would design the car and be the platform/operating system and offload everything else to its supply chain partners, as it has in computing and smartphones. Apple would want to “own” the key differentiating components in such a scenario, as it has with the apps processors in smartphones."

Beyond autos, Ahmad is still concerned that the iPhone is becoming even more important to Apple’s financial model, and he remains concerned about slowing in the replacement cycle. He also thinks the Apple watch is going to be too small to make up the difference, and he sees decline in operating earnings, excluding share buybacks.

"The only way out for Apple is to re-invent another industry large enough to make a difference, but having 45-50% gross margins in autos is going to be a very difficult – if not impossible– task," warned the analyst.

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 $128.79 yesterday.

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