Apple Inc. (NASDAQ:AAPL) and smartphone manufacturers as a whole will be facing several pressures in the near term, according to Jefferies analyst Peter Misek. One of the main issues he said the company will be facing is gross margin pressures (yes, that again), which he believes will be caused by a combination of other things.
Apple’s Problems With Moore Stress
One of the elements Misek sees coming into play against Apple Inc. (NASDAQ:AAPL)’s gross margins is the ending of Moore’s Law. Speculation about the end of the law has been going on since late last year, and it has the potential to heavily impact Apple’s margins.
Moore’s Law is not really a law at all, but more of a guideline for technology companies to manage their costs. The guideline is that we’ll see the amount of transistors which fit on an integrated circuit double about every two years. Of course this guideline has its limitations, and experts believe Moore’s Law will pretty much be over by 2030 because of various limitations.
According to Misek, this has implications for Apple Inc. (NASDAQ:AAPL) because it’s already creating big problems for vendors providing advanced smartphone components. He said in his report that as smartphone components become more generally commoditized, the costs and average selling prices for low-end and mid-range devices go down. As a result, this puts pressure on high-end devices like Apple’s iPhone.
Pressures On Average Selling Price
Apple Inc. (NASDAQ:AAPL) also has to deal with several other things that are putting pressure on its average selling price. Pre-paid phones, cuts in subsidies and white box growth are all going to require Apple Inc. (NASDAQ:AAPL) to pull its prices down, in Misek’s view.
He said developed post-paid markets are especially saturated in terms of smartphone penetration, and those markets that aren’t as penetrated typically have much lower gross domestic product per capital. As a result, his team sees average selling prices of smartphones in general falling from around $400 to closer to $200 in the next three to five years. Since Apple Inc. (NASDAQ:AAPL) relies so heavily on the high-end market, this could be a major problem.
Jefferies analysts have reiterated their hold rating and $420 per share price for Apple Inc. (NASDAQ:AAPL).