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Apple growth slowdown fuels concern of value-stock shifts
January 26, 2013
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WASHINGTON|: Apple, after years of hyper growth that made it the world’s most valuable company, is starting to look more like a value stock, according to some analysts reacting to the iPhone maker’s financial results.

At least 20 analysts lowered their price targets after Apple on Jan.23 reported its slowest growth rates in years and said the trend will continue. The stock fell 12 per cent yesterday, and has dropped more than 35 per cent since September.

Apple had defied Wall Street projections for years, ignited by the popularity of the iPod, iPhone and iPad tablet. Now, the company is entering a phase where it may more closely resemble a value stock, said Abhey Lamba, an analyst at Mizuho Securities USA - looking more like AT&T Inc. and International Business Machines Corporation in offering investors slower sales growth, predictable earnings and a steady dividend.

“This is a big shift in the company’s position from a year ago,” Lamba said. “The growth has slowed down much faster than we anticipated.” Avi Silver, an analyst at Credit Agricole Securities USA Inc., and Mark Moskowitz, an analyst at JPMorgan Chase & Co., joined Lamba in saying Cupertino, California-based Apple may attract value investors after this week’s earnings report.

Apple rose to the equivalent of $454.10 in German trading at 9:41 a.m. Frankfurt time after dropping to $450.50 at the close in New York. Rival Samsung Electronics Co. (005930) fell 2.5 per cent in Seoul after saying a strengthening won may cut operating profit and as investors cited concerns that competition is intensifying.

The fiscal first-quarter results underscored the challenges investors see for Apple. Competition is stiffening from Samsung, Google Inc. (GOOG) and Inc. The iPhone, Apple’s biggest source of revenue and profit, is in a smartphone market that is becoming increasingly saturated, while popular new devices such as the iPad mini have a narrower profit margin than other Apple products. Meanwhile, manufacturing snags have held up shipments of the iPhone, iPad and Mac personal computers.

The company also is operating under a new management structure installed by Chief Executive Officer Tim Cook in October, when he ousted longtime mobile software head Scott Forstall.

Last year, Cook reinstated the company’s dividend, offering a payout for the first time since 1995. Apple’s indicated dividend yield has climbed to 2.35 per cent as the stock has fallen, according to data compiled by Bloomberg. That compares with 1.66 per cent for IBM and 5.33 per cent for AT&T.

Apple also signaled the slowing growth will continue when it announced a new format for sharing its financial outlook - one that it indicated will be more reliable. The company in the past has given conservative forecasts that have been ignored by investors and analysts, who instead used the guidance as a starting point to create rosier projections.

Apple said second-quarter sales will be $41 billion to $43 billion, which would be the slowest rate of growth since 2009. The figures Apple provided also indicate profit may fall about 17 per cent, the first drop since 2003, said Walt Piecyk, an analyst at BTIG LLC in New York.

 “Maybe this isn’t sandbagging and is just the reality that they aren’t going to grow earnings,” Piecyk said.

To truly become a value stock, Apple may have to start giving more of its $137.1 billion cash pile to investors. The company’s dividend yield still lags behind other technology bellwethers. Intel Corporation pays out an indicated 4.3 per cent, while Hewlett-Packard Co. (HPQ) pays 3.1 per cent and Microsoft Corporation’s indicated yield is 3.33 per cent.


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