Apple is actually the smart money’s second favorite publicly traded company (see why it’s important to pay attention to hedge fund activity).
Jefferies analyst Peter Misek believes that the next two years could be challenging for the Cupertino-based company. In a note to investors, as detailed by AppleInsider, Misek said “the push into developing mobile markets, necessary technology development spending, and financial factors could put Apple in a tough place over the next two years.”
Yesterday, Misek expressed concern over what Apple Inc. (NASDAQ:AAPL) is going to face in the near future. He talked about four reasons why “Apple is potentially facing a very rough two-year period.”
A piece published by Fortune goes a long way in explaining what Misek believes the future may bring:
“Apple’s capital expenditures are likely to double in the next two years (adding $10 billion per year, he estimates) as the company is forced to finance its chip and touchscreen suppliers’ factory expansions and build up its iCloud and online service centers.”
“Apple’s cash balance could be reduced by $10 billion, and $40 billion of the company’s cash collections could be deferred over the next two years if Apple plans to expand its iPhone sales into pre-pay countries like India by replacing its carrier subsidy model with an arrangement where it lends the money to buy the phones directly to consumers”
“International iPhone sales are slowing dramatically,” Misek writes, “particularly in lower GDP per capita markets. We believe alternative distribution models like those in India can improve growth and the financing receivables will largely be securitizable; however, increased capital commitments would make a quick change more difficult should sales fall.”
“The rise in so-called whitebox smartphones sales will accentuate what he calls “Apple’s product gap.” He points to Glonee and Konka, both of which he says are offering handsets that are similar to the Samsung Galaxy S3 but for a fraction of the price. “We think these high-end white box phones are forcing Apple to invest in next-gen screen technology in order to differentiate.”
As you can see, Misek is not sold that Apple Inc. (NASDAQ:AAPL) is going to turn things around in the near future. This is not to say that everything is doom and gloom for the tech giant, but there are reasons to believe that the next two years could be a challenge.
At this time, Misek continues to rate Apple a “hold.” Additionally, it is important to note that his price target of $500 is among the lowest on Wall Street.
Do you agree with Misek? Share your thoughts in the comment section below.
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DISCLOSURE: I have no positions in any stock mentioned.
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