Sole Apple Analyst With ‘Sell’ Rating Clings to View Even as Stock Surges

By Peter Burrows - Feb 16, 2012 4:34 AM GMT+0700

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Edward Zabitsky is the only person among at least 56 analysts whose Apple Inc. (AAPL) ratings are tracked by Bloomberg who recommends that investors “sell” the shares.

Zabitsky, who analyzes equities for Toronto-based ACI Research, said he’s sticking to the view even after the shares soared past $500 and extended Apple’s lead as the world’s most valuable company, Bloomberg.com reported on its Tech Blog.

Margins on the iPhone, Apple’s best-selling product, will come under pressure as competing handsets, such as those sporting Microsoft Corp. and Google Inc. software, gain wider acceptance, Zabitsky said. Rivals, including Samsung Electronics Co. (005930), may get a boost from a new Web standard called HTML5 that’s designed to improve access to software tools on mobile devices, bolstering alternatives to the iPhone, he said.

“I should have waited for there to be more adoption, but intellectually, I feel good about the call,” Zabitsky said.

Prices on the iPhone may decline as Apple takes steps to compete with Android and Windows phones, he predicted. The gross margin on the device may fall to 25 percent, putting it on par with the iPad and Mac computers, from more than 50 percent now, Zabitsky predicted.

One of the biggest beneficiaries may be Samsung, which can undercut competitors because it also makes many of the parts used in devices, the analyst said.

“If a price war breaks out in Android phones, Samsung wins hands down,” he says.

IPhone Alternatives?

Zabitsky is placing a big bet on HTML5. Applications based on the standard will give users added flexibility in accessing Web-based tools on a handset, creating a more viable alternative to the iPhone, according to Zabitsky.

If that standard takes off, customers will be able to get to most of their favorite services without the need of Apple’s app ecosystem. The move to speedier 4G cellular networks and the increased availability of Wi-Fi hot spots will also make the Web apps more useful.

Zabitsky is not the only one to predict the fall of Apple. The AAPLinvestors blog maintains a list of bearish predictions on its iPhone Death Watch page.

That list includes a few of Zabitsky’s calls. In 2009, for instance, he predicted that Apple’s hardware “will eventually become irrelevant.” Apple’s shares were about $210 then.

Apple’s stock slipped 2.3 percent to $497.67 today, two days after closing above $500 for the first time. Zabitsky had a target price of $270 as of January. That compares with $575.56, the 12-month consensus estimate among analysts surveyed by Bloomberg, and the $700 price set by Daniel Ernst, an analyst at Hudson Square Research.

Zabitsky said it hasn’t been easy sticking by his sell recommendation, which is more than a year old. Zabitsky said he didn’t foresee how poorly Nokia Oyj (NOK1V) and Research In Motion Ltd. (RIM) would fare in comparison with Apple.

Apple isn’t the only one on his negative list. He’s got a sell on 12 of 15 companies, including Cisco Systems Inc. (CSCO), Broadcom Corp. (BRCM) and Juniper Networks Inc. (JNPR) His only buys are on Alcatel-Lucent (ALU), the European telecommunications equipment maker, and a company called Emcore Corp. (EMKR), which makes optical components for the networking industry.

To contact the reporter on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net