Channel checks offer analysts a way of gathering valuable insights about a company’s current standing. And recently, by checking in with both some ex-employees and a major rival, Needham’s Laura Martin set about finding out what investors need to know about Apple (AAPL) right now.
Both the competitor – a Samsung Mobile Senior Exec – and former employees think the renewal cycle for smartphones has extended from what it used to be. While a previous cycle would have lasted between 24-26 months, due to “pressure on consumer spending post-COVID, smartphone market saturation, and/or limited innovation,” former employees think a cycle now lasts around 36 months. The competitor thinks it is even longer – roughly 40 months – with the exec believing the problem is partly down to there being “few compelling new features worth upgrading for,” particularly from Apple. “This trend is especially evident in the U.S.,” notes Martin, “where everyone owns at least one smartphone.”
Apple’s ecosystem advantage is one noted by the competitor, who admits the “value proposition encourages consumers to stay within the brand when they add on new devices.” For instance, an iPhone user is more inclined to purchase an iPad over a competing tablet brand. This loyalty decreases the necessity for Apple to distinguish its products with extra advertising or frequent innovative updates, he argues.
That is sort of reflected in the former employees’ comments about Apple’s retail strategy. Over the last 7 years, the percentage of devices sold through Apple’s own stores and Apple.com has grown. The first-party channel has risen in significance, particularly regarding sales of Macs and iPads. Beyond its own stores, Apple has streamlined its consumer retail strategy in the U.S., focusing more on a select group of partners such as Best Buy, Amazon, Walmart and Costco. This shift has “lowered its dependence on other channels dramatically.”
The exec sees an 80% chance Samsung will raise its prices in the US over the next 3 years while also believing Apple will increase the prices for its high-end models. However, he believes Apple will use that extra cash to reduce prices for low end, entry-level models, thereby bringing in new consumers into its ecosystem, and these will help “grow its installed base.”
All told, Martin reiterated a Buy rating on AAPL shares, backed by a $220 price although that figure suggests the shares will stay rangebound for now. (To watch Martin’s track record, click here)
Martin’s target is mirrored in the Street’s average target, which is practically the same. Rating wise, based on 24 Buys, 10 Holds and 1 Sell, the stock claims a Moderate Buy consensus rating. (See Apple stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
