Apple Inc. (NASDAQ:AAPL) shares have been upgraded from sell to hold by analysts at ABG Sundal Collier. Nonetheless, they join analysts at several other firms in remaining concerned about margin erosion after the company’s most recent earnings report. In their view, competition is going to be one of the biggest drivers to push Apple Inc. (NASDAQ:AAPL)’s margins down.

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Along with its latest earnings report, Apple Inc. (NASDAQ:AAPL) also announced a new capital plan to return more cash to shareholders, but that wasn’t enough to make up for the grim June quarter outlook. ABG Sundal Collier analysts point out that one thing Apple Inc. (NASDAQ:AAPL) didn’t reference in its report was growing competition, and in their view, the iPhone “has lost much of its lustre in the eyes of both consumers and operators.”

They believe Apple Inc. (NASDAQ:AAPL) will see “a serious dent” in its share of the smartphone market over the next six months. In fact, it could possibly even go below 13 percent and be overtaken by Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s Galaxy series. As a result, the company’s margins could be eroded even further because of heightened competition if it pushes off its iPhone refresh until late summer or early fall as expected. And when less-expensive smartphones are added into the mix, margins will be affected even more.

In ABG Sundal Collier’s view, Apple Inc. (NASDAQ:AAPL) is heading into a phase in which it should focus on preservation rather than expansion. In their central case, they believe the company’s 12-month trailing earnings per share trajectory will reverse its course, almost entirely as a result of the contraction of the company’s gross margins.

They believe that competition is becoming such a big problem for Apple Inc. (NASDAQ:AAPL) at this point that the company will simply have to do something about its premium pricing. In their view, “competitive forces are beginning to undermine Apple Inc. (NASDAQ:AAPL)’s premium prices.” As a result, the company’s gross margins could fall to 36 or 37 percent, compared to the 47 or 48 percent they were at just a year ago.

As of the moment of this writing, shares of Apple Inc. (NASDAQ:AAPL) are up almost 2 percent.