Apple Inc.: Where Is The ‘Super Cycle’ Everyone Wanted? Not Here, Says Andrew Uerkwitz

Oppenheimer's Andrew Uerkwitz is cutting his Apple iPhone shipment expectations for fiscal 2018 in his latest cautious report.

Over one year has passed since Oppenheimer analyst Andrew Uerkwitz first made the call on Apple Inc. (NASDAQ:AAPL): iPhone shipments will hit a peak come fiscal 2018, ASP will no longer see substantial growth, and this rocky double combo will result in an “extended period of earnings growth malaise.”

How did the cards play out? Uerkwitz says the $54 billion the tech titan boasts in free cash flor for fiscal 2018 “will have to do instead,’ as “it appears the ‘super cycle’ we all wanted isn’t here.”

In reaction, the analyst reiterates a Perform rating on AAPL stock without listing a price target. (To watch Uerkwitz’s track record, click here)

“It appears we were too optimistic on unit growth (FY15 keeps the record shipments) but too pessimistic on ASP (though Apple may have reached its peak) […] Longer term we remain steadfast in our belief that without the addition of new, meaningfully large product categories, Apple will enter an extended period of slow growth as the secular smartphone growth era comes to end and shifts to AI-driven devices,” writes the analyst.

First, Uerkwitz points to the rough nitty gritty- Apple delivered, as far as the analyst is concerned a “lackluster iPhone performance,” leading him to cut his second fiscal quarter shipment projection by 10 million and his third fiscal quarter shipment forecast by 8 million units.

“We believe high price and lack of compelling features in iPhone X will keep a lower than expected number of users from switching or upgrading,” asserts Uerkwitz, who goes as far as to wager: “We believe not even the X could break the replacement elongation cycle.”

Performance is not the only lackluster element the analyst criticizes, finding that there are not enough “compelling” features or services in display and interface to entice a “meaningfully” expanded iPhone installed base; or to kickstart an accelerating replacement cycle. In a nutshell, the analyst dismisses “AR-related functions without killer apps.”

Short-term, there is one advantage that could lean in Apple’s favor: weakness in the U.S. dollar. This, the analyst argues, could serve to slightly improve margins, at least for the upcoming few quarters.

With new expectations, the analyst now calls for single-digit gains in fiscal 2019 to be followed by a dip in iPhone shipments by fiscal 2020.

Overall, “We believe a matured high-end smartphone market will yield low single-digit unit growth Y/Y at best. We question Apple’s ability to drive significant stock returns from future iPhone cycles. However, ample cash flows, tax reforms, and low multiples will keep downside limited,” Uerkwitz contends.

TipRanks showcases a largely optimistic Wall Street consensus circling Apple stock. Out of 31 analysts polled in the last 3 months, 22 are bullish on Apple stock while 9 remain sidelined. With a return potential of 13%, the stock’s consensus target price stands at $194.36.

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