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Here's Why 'Applewood' Is So Important

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Citi analyst Jim Suva attributes Apple Inc. (NASDAQ: AAPL)'s pricing strategy of lowering the iPhone SE price point to $399 as "clearly intended to gain more share in the emerging markets," specifically in India and the rest of Asia-Pacific, where 80 percent of unit sales are comprised of phones with prices below $400.

"We refer to this as the premiere of 'Applewood' (India focused push by Apple to showcase it can price and gain material share). We anticipate additional pricing adjustments when they launch iPhone 7," Suva wrote in a note to clients.

Related Link: These 2 Firms Say iPhone SE And iPad Pro Won't Drive Significant Sales

As of 2015, Apple has a 2 percent share in India, and the analyst believes if Apple were to increase market share to a comparable level of China (around 13 percent) iPhone unit numbers could jump 15—20 million units.

Suva, who reiterated his Buy rating on Apple shares, continues to expect Apple to return 7 percent back to shareholders (about 65 percent free cash flow payout) via share buybacks and dividends. He also expects the iPhone maker to announce an update to their capital returns program at the April earnings announcement.

"While near term volatility is expected given tough iPhone compares y/y, we believe the growth in addressable market from more attractively priced iPhones as well as iPhone 7 launch in September are important catalysts for the stock near term," Suva noted.

Longer term, the analyst expects to see encouraging signs that Apple's ecosystem extends beyond the iPhone "as the company continues to gain traction with services (cloud, AppleCare, Apple Pay, apps) which are more recurring in nature."

At time of writing, Apple shares were up 0.86 percent at $106.82. Suva has a price target of $130 on Apple shares.

Latest Ratings for AAPL

DateFirmActionFromTo
Jun 2019Initiates Coverage OnOutperform
Jun 2019MaintainsBuy
May 2019MaintainsOverweight

View More Analyst Ratings for AAPL
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