Is Apple Capitulating?

Apple Inc. headquarters in Cupertino, California.
Source: Joe Ravi | Wikipedia
Apple Inc. headquarters in Cupertino, California.

Apple has received more than its fair share of criticism from Wall Street in recent days, and Monday is no different. That may be a sign that capitulation is starting to happen though.

CLSA analyst Avi Silver downgraded shares to "outperform" from "buy," lowering his price target to $505 from $575. Silver cited weaker iPhone trends as the primary reason why Apple's shares have been so weak recently. Shares of the tech heavyweight have fallen 18.9 percent year-to-date, and more than 38 percent since the iPhone 5 went on sale.

Silver cut his earnings estimates for fiscal year 2014 to $46.62 a share from $51.71, but noted that he expects to see an uptick in new products later this year to help Apple return to growth. "Following a Jun-Q product lull, we expect new products (including iPhone mini) to expand Apple's emerging markets offering and return Apple to EPS growth in C2H," Silver wrote in a note.

This is the same story Apple investors have been hearing recently. Credit Suisse recently cut its earnings estimates on Apple on iPhone concerns, citing competition from Samsung, and the inevitable product refresh later this year. The iPhone 5S is expected later this year, according to recent rumors.

Citi and Barclays Capital also cut earnings estimates last week for essentially the same reasons. Citi is worried about both the iPhone and the iPad, while Barclays is more worried about the iPhone.

"Indications of reduced demand to Apple's suppliers contribute to our existing concerns that end demand for 10" iPad and iPhone5 in particular is softening, reflecting share loss by Apple in both the tablet market and the smartphone market," wrote Citi's Glen Yeung in a note. He cut iPhone estimates for the second quarter to 34 million units from 35 million, with the third quarter staying at 25 million units.

Barclays' Ben Reitzes cited Samsung as a factor for his estimate cuts. "Given our checks in the supply chain and factoring in increased competition from Samsung, we are lowering our iPhone forecast," he wrote. He cut iPhone estimates for the March quarter to 35 million, down from 36 million, with the full year at 150.8 million units.

Even one of the most bullish Apple analysts, Topeka Capital Markets Brian White is sounding negative these days. "The final February sales numbers for our Apple Monitor have been reported and the performance missed historical averages," White said in a note.

While nothing is certain, additional price target revisions, and perhaps a couple more downgrades on Apple, are in the cards in the near term. Sentiment has changed so violently in the past few months, it's scary. The company that was once the darling of Wall Street and Main Street, now can seemingly do no right. Investment guru Jeff Gundlach noted as such in a recent presentation that perhaps the mindset on Apple has gotten too bearish.

"I don't have an opinion on Apple now," Gundlach said during a Q&A session, but noted that Apple is "really oversold" in the short-term, and could go higher as its next move. He ended that by saying he does not think Apple shares will see $700 "anytime soon."

When Wall Street analysts move on a name, it is a herd mentality. The consensus right now is that Google and Samsung are eating Apple's lunch. Current estimates from analysts polled by Thomson Reuters expect Apple to earn $10.22 a share on $42.9 billion in revenue this quarter. A year ago, Apple earned $12.30 a share on revenue of $39.19 billion, so revenue is projected grow just 9.5 percent year over year.

Samsung and Google both certainly have more buzz, especially as Samsung gets ready to launch its Galaxy S IV later this week. There is no denying that, but there is no denying either that sentiment is low on Apple either. This could be a sign of capitulation, a sign of giving up. That may very well be the sign that sentiment is poised to change.

The Cupertino, Calif.-based Apple is in a perceived rut right now, with the sentiment being that innovation is dead, and that Apple will never be able to best Google and Samsung. Apple needs to alter the perception of itself, or this cycle won't end. A deal with China Mobile could change this, as well as a raised dividend and more return to shareholders.

Apple has played the underdog role once before, however, under CEO Steve Jobs, now deceased. Now is the time that CEO Tim Cook and his new management team will prove their worth. Expectations are low, and Wall Street is taking them lower with each passing day.

All it would take is "one more thing" for those thoughts to turn on a dime.

By's Chris Ciaccia

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