Mizuho Analyst Explains The Reasons For Downgrading Apple

Apple Inc. AAPL fell more than 2 percent following Mizuho Securities analyst Abhey Lamba downgrading the stock from Buy to Neutral, while keeping the price target unchanged at $115.

Lamba was seen recently on CNBC discussing the reasons for downgrading Apple.

“On the upside, I think if they kind of show that this much more than the margin expansion is possible today with the iPhone 6 cycle than people are expecting and if that’s sustainable, that could get the stock towards the upper end,” Lamba said. “iPhone 6 in general is a higher margin product, especially with the addition of 6 Plus, it’s a higher margin product.”

He continued, “...but keep in mind, iPhone is such a big franchise for them, they need 40 to 50 million net new users to kind of keep growing that franchise and over time that’s going to get harder and harder for them to achieve.”

What Would Be The Margins For This Product Cycle?

“Yeah, historically the iPhone margins have been between 48 to 58 percent and with iPhone 6 and 6 Plus if you look at some of the teardown studies it seems to be around 60 percent margin for that product. Now, for iPhone segment that would get diluted by 5C and 5S sales, but clearly there is potential for them to take it towards the upper end where they did in 2012, when their total gross margin was in the neighborhood of 45 to 48 percent, they could get to about 42 to 43 percent in this cycle,” Lamba said.