Apple's (AAPL) Upcoming Decade of Malaise - Oppenheimer

Oppenheimer analyst Andrew Uerkwitz issued a cautious note on Apple (NASDAQ: AAPL) as the iPhone approaches it 10-year anniversary. Uerkwitz is leery on the next decade as the company "lacks the courage to lead the next generation of innovation (AI, cloud-based services, messaging); instead will become more reliant than ever on the iPhone." They see the stock generally underperforming the market although it could outperform in years with radical redesigns (2017?).

Uerkwitz projects that unit sales will peak in FY18 at 245 million. "We believe tailwinds from first-time buyers and switchers are no longer material," he said. "And we expect the overall replacement cycle to be longer due to weaker carrier-provided incentives and a more diverse installed base."

In addition, iPhone ASP may have peaked, he said. "We believe that Apple will not be able to raise iPhone prices meaningfully beyond the next cycle," he said. "Fewer hardware breakthroughs are available today that can trigger favorable mix shift. Moreover, as the performance gap and hardware differentiation between iPhones and their competitors shrink, Apple won’t be able to raise prices and widen its premium over high-end Android."

They see similar problems affecting the iPad and Mac product lines, as consumers find it increasingly hard to justify paying more or upgrading more often for shrinking incremental value and differentiation.

The analyst believes Apple's operating systems and the App Store are the most effective defense from competition. That said, they believe the company's primary role as "the hardware platform" may at times clash with its secondary role as "the software and service provider." In addition they see plenty of competitors that can seriously harm Apple's ecosystem with software and services.

Bottom line, Uerkwitz believes Apple is about to embark on a decade-long malaise.

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 $110.06 yesterday.

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