Start-Of-The-Art Products Just One Reason Apple Remains A 'Differentiated Story'

• Apple Inc. AAPL shares have fallen 11.5 percent over the past year, reaching a low of $96.30 on January 21.
• Brean Capital’s Ananda Baruah has maintained a Buy rating on the company, with a price target of $170.
• Baruah believes that Apple continues to be a “differentiated story” in the long term, given its state-of-the-art product, “uniquely positioned” ecosystem, record Android switches in the December quarter and emerging market opportunities.

Analyst Ananda Baruah mentioned that the company’s March quarter guidance implies iPhone units of 50,000 to 55,000, which was better than anticipated.

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However, Baruah believes that iPhone ASPs would decline in the March quarter, both quarter-on-quarter and year-on-year, “given 1) AAPL has “peaked” mixing up from the iPhone 6/6s cycle and 2) FX’s impact to ASPs given that AAPL generates 2/3rds of revenue outside the U.S., and there has been sustained FX devaluation relative to the US$.”

For the December quarter, Apple reported its revenue marginally below and EPS ahead of the consensus, with overall revenue growing 8 percent in constant currency and EPS expanding 8 percent year-on-year. Phone unit shipment was flat year-on-year, in line with the consensus.

However, iPad and Mac units declined 25 percent and 4 percent year-on-year, respectively, with their revenue declining 21 percent and 3 percent, respectively. The company has guided to March quarter revenue and gross margin marginally below the consensus.

“Specifically, the mid-point of the Mar Q revenue guidance represents a decline of 11 percent in revenue from 1) 400 bps FX impact, 2) a very strong compare due to the absorption of iPhone 6/6 Plus launch spillover, and 3) softer macro environment especially in several commodity driven economies,” according to the Brean Capital report.