Apple Lacks Courage To Lead Next Generation Of Innovation

While iPhone ASP may have already peaked, its unit sales may peak in FY 2018, Oppenheimer’s Andrew Uerkwitz said in a report. He added that Apple Inc. AAPL does not seem to have “the courage to lead the next generation of innovation (AI, cloud-based services, messaging),” and would probably become even more reliant on the iPhone.

Uerkwitz expects the stock to generally underperform the market over the next decade. He maintains a Perform rating on the company.

Shrinking Product Differentiation

Apple may not be able to meaningfully increase iPhone prices beyond the next cycle. “Fewer hardware breakthroughs are available today that can trigger favorable mix shift,” Uerkwitz wrote. He added that the performance gap and hardware differentiation between iPhones and high-end Android phones would continue to shrink, restricting Apple’s ability to raise prices.

Uerkwitz expects iPhone unit sales to peak at 245 million in FY 2018. “We believe tailwinds from first-time buyers and switchers are no longer material. And we expect the overall replacement cycle to be longer due to weaker carrier-provided incentives and a more diverse installed base.”

Similar problems are likely to affect the iPad and Mac as their differentiation gaps shrink. “We see plenty of competitors that can seriously harm Apple’s ecosystem with software and services,” the analyst commented further.