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Are Apple Inc iPhone Sales Winding Down? Piper Jaffray Weighs In

By Carly Forster

Technology giant Apple Inc (NASDAQ:AAPL) posted its fiscal third quarter earnings results in July, missing Wall Street’s iPhone sales expectations. The stock has fallen over 13% since as some investors have begun to question if the company’s biggest sales driver is beginning to lose its novelty.

To add fuel to the fire, multiple U.S mobile carriers such as AT&T, Verizon, and T-Mobile have transitioned from offering two-year contracts, which offers a subsidy for a new phone, to monthly contracts which do not come with the same subsidy. In the new month-to-month plans, consumers will pay the full price for a new phone in monthly installments. “The plans sell the benefit of enabling customers to pay no money down and, in some cases, upgrade their devices earlier instead of the typical two-year subsidized window,” according to Piper Jaffray analyst Gene Munster. Some believe this poses a threat to future iPhone sales because many consumers are not accustomed to paying the full price.

Gene Munster believes the new month-to-month mobile contracts “could result in a compressed upgrade window for some iPhone users,” but “there may not be one specific quarter where the tailwind is recognized and it may be a more gradual and consistent slight tailwind for multiple quarters until the majority of users transfer to those types of installment plans.”

With the launch of the new iPhone 6S right around the corner, Munster believes those who upgrade their current iPhones and service provider contracts early could have an impact on iPhone sales over the next few quarters. The analyst noted, “If iPhone users are upgrading every cycle, it would imply that a significant number of one-year-old devices, which typically become the mid-tier phone in Apple’s pricing structure, should enter the market.”

Furthermore, “carriers could potentially sell those at rates lower than Apple’s mid-tier offering for an unused device, thus potentially impact Apple’s sales of mid-tier devices.” Munster believes “the mid-tier typically provides between 15-25% of device sales in a given quarter” and “overall this could mean a lower percentage of device sales in the mid and even lower tiers and a greater percentage from the high-tier devices, yielding a higher ASP.”

As such, the analyst maintained an Overweight rating on the stock with a $172 price target on August 11.

Out of 32 analysts polled by TipRanks within the past 3 months, 22 analysts are bullish on Apple, 9 are neutral, and 1 is bearish. The average 12-month price target for Apple is $150.24, marking a 32.38% potential upside from where the stock last closed. On average, the all-analyst consensus for Apple is Moderate Buy.

Carly Forster writes about stock market news. She can be reached at Carly@tipranks.com