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Analysts See China Swing Factoring In Apple's Q2

Analysts See China Swing Factoring In Apple's Q2
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Apple Inc. (NASDAQ: AAPL) will post one more quarter of stellar smartphone growth Monday, but it could be downhill from there, an analyst said Friday.

Cupertino, California-based Apple Campus 2, is expected to post fiscal second-quarter earnings of $2.15 a share, along with revenue growth of 22.5 percent to $55.91 billion.

Deutsche Bank's Apple Analysis

Apple's growth will wane beginning with its fiscal third quarter, according to Deutsche Bank's Sherri Scribner, who maintains a Hold rating and $125 price target.

Apple traded recently at $130, up $0.34 cents. The shares have gained about 15 percent during the past three months.

Scribner doesn't see the Apple Watch launch as a catalyst and said the high-end smartphone market is now saturated.

Growth in the market is getting driven by cheap phones, particularly in Asia, according to Scribner.

Related Link: Deutsche Bank Previews Apple's Earnings

Other Perspectives

Although Scribner sees few upcoming catalysts, Cowen's Timothy Arcuri said that with the Apple Watch sales ramp-up, the expected launch of a 13-inch iPad and continued buybacks a higher share price could be on the horizon.

Apple launched a $90 billion buyback authorization a year ago.

Arcuri maintained an Outperform rating and $135 target, noting his belief that China "remains on pace to become Apple's biggest iPhone market."

Indeed, Stifel's Aaron C. Rakers called China "the most significant swing factor" for Apple's March quarter.

Rakers rates Apple a Buy, with a $150 target and expects second-quarter iPhone shipments of 56.9 million units, 8.5 percent more than the Wall Street consensus.

However, strong market share gains in China will get overshadowed going forward by a 16 percent decline in smartphone sales in developed markets this year, according to Maxim Group's Nehal Chokshi, who launched coverage recently with a Hold rating and $144 target.

As for Apple Watch, Cleveland Research's Benjamin J. Bollin thinks the product – as part of the "other" category – will contribute to about 6 percent of 2015 revenue.

"We're feeling marginally better" about the potential for the watch to contribute more in 2016, Bollin said.

FBR's Daniel H. Ives thinks differently, touting that everyone's focus on Apple's hardware might be missing the point.

"The secret sauce is software" for profit growth in coming years, according to Ives, who launched coverage recently with an Outperform rating and $185 target.

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Posted-In: Aaron C. Rakers Apple Campus 2 Benjamin J. Bollin Cleveland ResearchAnalyst Color Reiteration Analyst Ratings Tech Best of Benzinga


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