Analyst: Low Cost iPhone to Cannibalize Higher Priced iPhone Sales

Piper Jaffray analyst Gene Munster has lowered his target for Apple from $788 down to $688, reports Business Insider.

Munster believes that Apple's introduction of a low cost iPhone will result in significant cannibalization of its higher priced iPhone sales.

Here's his 'worst case scenario' with a low cost iPhone:
● For every three cheap iPhones sold, Apple sells one less high end phone. He thinks the cheap iPhone sells for $300.
● In calendar year 2014, he sees high end iPhone sales increasing by 6%. He thinks Apple sells 75 million low cost iPhones in 2014, taking 11% of the low end market.
● Margins decline slightly. Munster estimates "gross margin goes to 36.6% in CY14 vs. 38.6% in Dec-12. This assumes a $300 ASP, and a 30% gross margin for the cheaper iPhone vs. $620 ASP and a 55% gross margin for the high end iPhone."
● June guidance will be $34-$36 billion, compared to the street at $39.6 billion.
● The dividend will be increased to $14, up from $10.60. He doesn't expect an increase in buybacks. Debt is an option.


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