Citigroup Inc. (NYSE:C) in its current research report assigns a target price of $430 for Apple Inc. (NASDAQ:AAPL) amid customers’ increased interest in the low-end iPhone4.
Glen Yeung and team at Citigroup Inc. (NYSE:C) feel Apple Inc. (NASDAQ:AAPL) will drop to $430 from its current $445.15 in view of a persisting saturated developed market and in the absence of any must-have innovation.
International Telecommunications Union data suggests there will be 6.8 billion active mobile subscriptions in 2013, representing 96 percent of the global population of 7.1 billion. This was about 84 percent in 2011.
Citi analysts feel that with the global mobile-cellular population approaching 100 percent, growth rates would fall to their lowest levels in both developed and developing countries. Citi feels mobile-cellular subscription growth is expected to dwindle globally to 5.4 year-on-year in 2013.
Citigroup Inc. (NYSE:C) fears at this level of global handset penetration, the market for new mobile-cellular hardware is now approaching a replacement-only market.
According to International Telecommunications Union data, developed markets have 128 percent penetration, implying more than one subscription per person, while for developing markets the number stands at 89 percent. Further, mobile broadband subscriptions in developed countries stand at 75 percent as against 20 percent in developing countries.
Citi Analysts’ Conclusion
Citi analysts thus conclude that such saturation leaves less room for Apple Inc. (NASDAQ:AAPL) to grow in developed markets than developing markets.
Apple Inc. (NASDAQ:AAPL)’s problems are compounded by the fact that over 70 percent of its revenues come from the Americas, EMEA and Japan.
Apple Inc. (NASDAQ:AAPL)’s proposed roll-out of the low-end iPhone during September followed by a sub-$250 iPad Mini release would only corroborate the view of customers’ increased focus towards low-end devices.
Citigroup Inc. (NYSE:C) in its report feels innovation in hardware is difficult to achieve, though based on current software demands, today’s hardware broadly meets most users’ needs. The analysts also feel the functional absorption of other devices such as digital cameras and MP3’s has run its course.
Citigroup Inc. (NYSE:C) thus feels in the absence of any new as-yet-unidentified ‘must-have’ functions, compounded by the saturation issues highlighted above, Citi models 2013 as the peak growth year in smartphones.
Citi thus assigns a target price for Apple Inc. (NASDAQ:AAPL) at $430 based on the implied multiples derived from growth and value regressions of a sample of large-cap technology companies.
Some of the key risks factored in Citigroup Inc. (NYSE:C)’s investment thesis include: 1) greater than expected market share loss in the high-end smartphone and tablet markets, 2) greater than expected gross margin erosion, 3) falling demand for Apple Inc. (NASDAQ:AAPL) phones in case carriers reduce subsidies for iPhones, 4) shifting consumer demand could cause greater-than-anticipated deceleration in the handset and smartphone markets.
