UBS's Apple Call: We're Not At 'Peak iPhone'

UBS’ Steven Milunovich maintained a Buy rating on Apple Inc. AAPL, with a price target of $120.

Return To Normal

Milunovich expects about 10 percent iPhone growth during FY17, with the iPhone 7 driving a return to the normal upgrade cycle.

“The disruptive attack from below historically has hurt leading hardware companies, but we think Apple's brand, product differentiation, and ecosystem protect it,” the analyst stated.

According to the UBS model, about 30 percent of the installed base purchases a new iPhone during an average year. However, the lengthening of the upgrade cycle led to the FY16 demand being lower than estimated.

A return to the 30 percent rate in FY17 is expected to drive double digit growth in upgrades. “Even with a decline in new customers, units could rise by close to 10 percent on the iPhone 7—we are not at peak iPhone,” Milunovich noted.

Apple’s Technology Platform

Milunovich pointed out that Apple benefits from its ecosystem, which can be better understood as a platform that creates network effects, which in turn differentiate the company’s smartphones from “previous handset shooting stars.”

The analyst noted that the company has been able to achieve “a better balance of product proprietariness and platform openness in mobile.”