Research firm Jefferies has published a note on Apple Inc. (NASDAQ:AAPL) giving it a Hold rating and price target of $405.00. Cupertino-based Apple Inc. (NASDAQ:AAPL) has cut its capital expenditure guidance for fiscal 2013 from $10 billion to $8.5 billion, which can be linked to timing and less hurdles for the iPhone 5S compared to iPhone 5, says Jefferies analysts Peter Misek, Jason North and Billy Kim.


CAPEX guidance lowered by Apple

Apple Inc. (NASDAQ:AAPL) has slashed its 2013 retail capital expenditure guidance from $850 million to $600 million, and capital expenditure has been lowered from $9.15 billion to $7.9 billion.  Analysts note that capex will be $3.3 billion in the third quarter compared to $1.0 billion in first and $5.8 billion in the third quarter of 2012.  According to the report, capital expenditure will again rise in fiscal 2014—the reason being Apple Inc. (NASDAQ:AAPL) shifting screen technology for the iPhone 6, switching to TSMC for app processor manufacturing, and establishing data centers before the second half of 2014.

Declining operating margins

Operating margins (OM) declined most in Greater China and Retail sections. Retail operating margins declined 400 bp quarter over quarter (Q/Q) and year over year (Y/Y). In Greater China, operating margin dropped 400 bp Q/Q and 1700 bps Y/Y as iPhone saw declining sales and iPad sales gained marginally. Jefferies hold the view that Retail OM dropped due to discounting along with mix shift to the iPhone 4.

 Analysts also said that channel inventory and component costs are higher according to the Apple Inc. (NASDAQ:AAPL)’s 10-Q and supply chain indications.

Rising inventory levels

Apple Inc. (NASDAQ:AAPL) has settled to purchase $13.8 billion compared to $13.0 billion in the previous quarter and $3.3 billion in component prepayment compared to $3.6 billion in the last quarter. Total funds utilized in the second quarter for prepayments were $269 million as against $354 million in the first quarter. Inventory enhanced 36 percent for Apple Inc. (NASDAQ:AAPL) on Balance Sheet versus flat Q/Q in the second quarter of 2012 pertaining to a combination of components and finished goods inventory.

According to the report, Apple Inc. (NASDAQ:AAPL) will be ready to incur further balance sheet risk for better pricing. Tech Company Qualcomm’s channel inventory hiked in Q1 and is estimated to decline in Q3 on account of new product launches.

Jefferies attached a page showing a circular from a low-end hyper market chain in Germany, Real where iPhone 5 seems to be on the same page along with Pork. This circular, further, reflects the increasing saturation of high end smartphones.