Wells Fargo Securities downgraded Apple (AAPL) on Thursday, saying the company's gross profit margin will come under pressure with the release of its next smartphone, likely named the iPhone 6, as wireless service providers pull back on subsidizing the retail cost of cellphones.
Analyst Maynard Um downgraded Apple to market perform from outperform, although he said in a research report that 2014 will be "highlighted by new products (iPhone 6, iWatch, iBeacon) and an increase in dividends and/or share repurchases."
Apple's iBeacon wireless, location-sensing technology will let retailers send alerts and coupons to iPhone users who are inside their retail stores via Bluetooth transmitters. Apple included iBeacon technology with the release of its iOS 7 operating system last year. Apple recently started using the technology in its own stores.
"We're concerned that gross margin will come under pressure later this year in the iPhone 6 cycle," Um wrote in the report.
He added, "There is limited amount of incremental market cap opportunity in the existing product segments Apple plays in (including the TV and watch opportunities) without material market share gains, and the balance of power may start to shift back to wireless operators from handset vendors."
Apple was down more than 1% in morning trading in the stock market today. Apple stock rose more than 5% in 2013 after being down as much as 28% for the year.
Verizon Wireless (VZ), AT&T (T) and Sprint (S) have subsidized the retail cost of iPhones, making that back on service revenue. Um, however, says their business model is changing as the wireless market matures.
"With 75%+ penetration in some developed countries (U.S.), we fear subsidization may become less of a focus as operators switch to a focus on driving usage. While we do not anticipate an immediate value swing, we believe we could see further evidence of a shifting balance of power that could weigh on Apple shares," he said.
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