Earlier this week, BITG Research analyst Walter Piecyk lowered his rating of Apple shares from "buy" to "neutral", an interesting move given that most other analysts have been scrambling to raise their price target for Apple shares.
Earlier this week, BITG Research analyst Walter Piecyk lowered his rating of Apple shares from “buy” to “neutral”, an interesting move given that most other analysts have been scrambling to raise their price target for Apple shares.
What’s troubling about Piecyk’s piece, though, isn’t his conclusion per se, but rather that it rests on completely flawed information.
You see, Piecyk downgraded Apple stock because he claims that carriers are getting fed up with paying high subsidies to Apple and that subsequent changes to upgrade policies may yield a slower number of iPhone shipments in the next quarter.
Here, Philip Elmer-DeWitt of CNN cites Piecyk’s research note:
Operators, unwilling to stall the pace of ARPU growth, offered generous upgrade policies including some that enabled a fully subsidized phone upgrade only one year in to a two year contract. We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise to post-paid and pre-paid operators, alike.
Piecyk here is referring to the practice of carriers offering upgrade plans to consumers who are still under contract, as a means to keep them on board and prevent customer churn. And because carriers, Piecyk argues, will be cutting back on this practice in the future, iPhone sales in the coming months will slow down.
Piecyk specifically points to AT&T as a carrier exploring stricter upgrade policies as a means to offset subsidy costs.
There’s just one problem – as far as I can tell, there’s no record of any carrier offering consistent upgrade exceptions. In fact, the only example I could find was AT&T offering iPhone 3GS users subsidized pricing on the iPhone 4 ahead of the Verizon iPhone 4 launch.
The iPhone 4S is the most popular iPhone to date and no US based carrier offered iPhone 4 users still under contract the ability to upgrade to the iPhone 4S at subsidized pricing.
In short, what in the world is Piecyk talking about?
What’s more, carriers are bending over backwards to carry the iPhone. The iPhone isn’t a source of woe for carriers. On the contrary, the battle for iPhone users – who typically have higher monthly bills than other smartphone users – remains intense.
Well before Sprint carried the iPhone, for example, Sprint CEO Dan Hesse was quite open about the fact that the lack of the iPhone was the main reason behind subscriber defection. More recently, T-Mobile also attributed higher than expected financial losses to the iPhone, or rather, the lack thereof on their network.
Sequentially, the decline in branded net contract customers was driven primarily by higher branded contract deactivations as a result of the launch of the iPhone 4S by three nationwide competitors in mid-October.
In short, carriers aren’t growing weary of iPhone subsidies. The iPhone, as a singular device, is the most popular smartphone on the market. It’s hardly a stretch to call it the only phone that has ever been bigger than a single carrier. It’s the phone that consumers want, and it’s therefore the device carriers want to have in their stable.
Piecyk writes that aggressive upgrade plans are becoming a burden for carriers, but aside from the aforementioned AT&T example, iPhone users have never been able to take advantage of policies that allow them to upgrade prematurely.
In any event, Piecyk sees Apple’s quarterly iPhone sales to decline by 5 million, resulting in a worldwide drop of 27.5 million units worldwide. Consequently, Piecyk believes Apple will deliver revenue during the third quarter that’s $1 billion below the consensus on Wall St.
It’s a wonder that analysts like Piecyk get paid for this type of lazy analysis.
