When Will the iPhone Joyride End?

Apple (Nasdaq: AAPL  ) is riding high on the iPhone right now. The high-definition screen and voice-controlled platform appeal to mobile consumers like none of the competing solutions can, and Cupertino is rolling in iPhone-powered profits.

But BTIG Research analyst Walter Piecyk sees the party ending very soon.

Piecyk just downgraded Apple to a "hold" even though he believes that second-quarter results will leave Wall Street's estimates eating dust later this month. He thinks it's time to "take a breather" on the market's largest stock because the long-term iPhone story is falling apart.

In short, Piecyk expects AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) to end their deep-discount subsidies on Apple products before long. "We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise," he says. Even Sprint Nextel (NYSE: S  ) , which committed to a long-term iPhone relationship last year, will probably see sales dropping off to protect profit margins.

Should investors listen to Piecyk? Well, I do believe that he's on the right track, because the supersized subsidy model doesn't appear to be very sustainable.

At some point, Ma Bell and friends surely will push back against Apple's greedy share of iPhone profits, and that revolt will carve deep gashes into Cupertino's profit margins. This is one of the biggest reasons I hase a bearish CAPScall on Apple right now. Moreover, AT&T has already declared that its loyalties are shifting, with a huge marketing push for the Nokia (NYSE: NOK  ) Lumia 900 over the Easter weekend. The $150 million budget for marketing that launch is bigger than anything Ma Bell has ever spent on promoting a new iPhone model.

On the other hand, Piecyk's track record on Apple isn't exactly stellar. He has predicted the end of big iPhone sales at AT&T before, and hasn't been proved right yet. Sometimes, Piecyk's research methods look downright biased. And putting a deadline on unpredictable trends like shifting consumer preferences and wireless carrier strategies is iffy at best.

So I agree with Piecyk's conclusions but disagree on the timing. My thumbs-down call is there for the long run and designed to capture Apple's fall from grace whether it happens in 2012 or 2015. Market timing is a sucker's game.

Do you see Apple's partners tightening the subsidy belt this year, or next, or perhaps never ever? Share your thoughts in the comments box below.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Nokia and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (8) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 09, 2012, at 11:59 PM, Salfol wrote:

    In that case Apple will create their own network

    Launching their own satellites and bypass those

    Jurassic park species,t vz and company's that keep

    Us with their networks worst than any third world

    Country's

  • Report this Comment On April 09, 2012, at 11:59 PM, millsbob wrote:

    " Market timing is a sucker's game."

    so is missing the boat on the most transformative company on the planet, with the best management team on the planet, with so much cash that they can give a dividend and Still be worried about where to stash the rest, and no doubt, product in the pipeline.

    Anders, i've followed your writing more than anyone else at the Fool, but you are Really outta touch with this one. i'm a lifelong technologist too, and you Don't have any special insight here.

    have you tracked how much AAPL has soared since you started making this strange call? it must be close to insane by this point.

  • Report this Comment On April 10, 2012, at 1:45 AM, mwlove wrote:

    Apple has enough cash to buy Verizon.

    Which of these tele companies wants to be the first to lose the iPhone? Maybe ATT, Verizon, et al. take a little hit on margins, but they still make money on the deal. They need Apple more than Apple needs them.

    Yes, there will come a day when Apple's margins get crimped. But it won't be this year, and it probably won't be next year, either. by then, there will be new products to feed the beast.

  • Report this Comment On April 10, 2012, at 2:44 AM, deemery wrote:

    This article totally misses the point that the growth in iPhone sales will not be in the US, but in BRIC countries.

    And mwlove has this right:

    "Which of these tele companies wants to be the first to lose the iPhone? "

    Part of the Big Deal with the iPhone is that it has people focused on the handset, and not the carrier. I strongly considered a switch to Verizon when we got new phones last year, now that ATT is getting up to par I really don't see that much difference between ATT and Verizon where I use my phone.

  • Report this Comment On April 10, 2012, at 3:15 AM, mesmd wrote:

    Anders,

    Wrong again! When the day comes that VZ, AT&T, etc., decide to ditch Apple, they will soon thereafter regret such a "foolish" move. Your post is as insightful as being human and mortal, we will die one day, but we don't know which year this will happen.

    I have a strong feeling that Apple might survive this loss, if it ever occurs. I have a feeling that Apple will have new products by then that have no need for these carriers.

  • Report this Comment On April 10, 2012, at 4:53 AM, mesmd wrote:

    You stated this correctly:

    On the other hand, Piecyk's track record on Apple isn't exactly stellar. He has predicted the end of big iPhone sales at AT&T before, and hasn't been proved right yet. Sometimes, Piecyk's research methods look downright biased. And putting a deadline on unpredictable trends like shifting consumer preferences and wireless carrier strategies is iffy at best.

    He stinks!!

  • Report this Comment On April 10, 2012, at 8:40 AM, demodave wrote:

    Anders, please explain your anti-Apple bias. Seriously. I just don't get it.

    I can accept that AAPL may not grow forever like it has in the last 12 months, but it's PEG showed that it was due for a major move upward. Now we've had at least some of that. Near term, there may be more, and that's great. Longer term, a dividend doesn't suck. Apple's "toys" have changed what consumers do with technology on a day-to-day basis.

    Some technophiles may prefer more flexibility to tear open their boxen and play with their guts. That's great. Some may prefer a lower cost of entry. That's great, too. Some (clearly many, such as myself) are willing to pay more and *NOT* have that flexibility or complexity and appreciate the beauty and interoperability. Buy the computer/phone/player of your choice. But why on earth would you let that cloud your judgement in investing?!?

    I just don't understand your persistent beef.

  • Report this Comment On April 10, 2012, at 10:32 AM, Nijo17 wrote:

    I think this article is a fairly accurate representation of the future demise of iWorld; which would bring Apple down to "normal" standards. All while taking the share price way down.

    It is simple, the telecom cos are certainly getting sick of subsidizing Appls crazy profits. It shows with their newfound support of the Windows Phone, plus the losses the tele cos are experiencing due to this. So, sooner or later the subsidies will go down, iPhone profits down, stock price down.

    Another more obvious scenario; Let's just say ABC Tech Company debuts a phone that is the coolest thing anyone has ever seen (kinda like the iPhone) and people begin to flock in droves to the new ABC Tech giving Apple back to the hipsters. What then? And for those who will "say it ain't so" and I am crazy, I will bet that RIM had similar hype to Apple just a mere 6-7 years ago and look at them now. They don't even know who their executive lineup is anymore!

    People should understand that the iPhone is HALF of APPLs profits, with iTunes another 15% or so and iPad right there as well. If and when iPhone profits start to underperform, the stock and profits will plummet to actual levels instead of hype values.

    In addition; Appl has a serious flaw in their cash handling. Their marketing budget dwarfs their R&D budget. Basically, they are not investing for the future. Yes, yes, yes I know the back lash, "they are efficient with the R&B they have" or "they are product geniuses", etc, etc, etc. But be real people. This is business 101. Invest in your company and you invest in the future of your company. Marketing dollars are for pushing current products...

    The other issue is their closed eco-system. It is a great system when people are in. But, once a person jumps ship from the iPhone or iPad to the next coolest thing, they are leaving the eco-system. So, no more iTunes and most likely no more future iProduct upgrades, etc, etc, etc,.

    To me, there is way too much risk in Appl. Call me crazy, but I call a spade a spade.

    Anders may be off on timing of the demise, but his assumptions do make a good point and are definitely food for thought.

    Thoughts?

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