Apple Still Going Strong Despite Smartphone Growth Slowdown: UBS

Rumor has it that sales of Apple Inc.'s (NASDAQ:AAPL) iPhone have reached their peak. However, a global survey by UBS suggested that the tech giant would continue to perform well despite the saturated smartphone market. Though such market conditions may restrict short-term gains and revenues, thereby undervaluing the company, the overall macroeconomic conditions and consumer decisions may favor Apple's growth further.

The iPhone unit is Apple's chief revenue generator. According to the survey, the company has not achieved a significant growth in iPhone sales because demand for iPhone 6s has slowed, as opposed to the iPhone 6 last year. Despite these negativities, a saturated smartphone market will likely not cause the tech giant any major problems, and Apple will continue to outshine as well as gain more market share than its rivals.

Ever since the end of the ban on Apple products in China in 2014, the tech giant has received significant demand from millions of Chine se businesses and consumers for its innovative products: iPads and iPhones. 60% of Apple's growth is accomplished in the Chinese region, where rivals such as Samsung continue to be second best.

The iPhone maker's larger market share is corroborated by a higher customer retention rate in the region. People are willing to spend higher sums when deciding to purchase new handsets. Therefore, the iPhone will likely become the premium high-end handset that meets user expectations. UBS considers the Android OS to have become a feeder for the iOS, and its 90% smartphone penetration rate in China will continue to favor Apple over Android-based manufacturers.

Even in the US market, UBS expects about 20% of American consumers to use Apple's Upgrade Program, which facilitates the purchase of a new iPhone model in exchange for an older one. Consumers paying in these installment plans are more likely to switch to handsets with greater memory capacities and larger screens, result ing in potentially increased shipment for the iPhone 6s and 6 Plus series in 2016. The current low smartphone penetration in certain emerging markets such as India is likely to result in a surge of 340-450 million users switching from ordinary phones to smartphones. UBS forecasts the unit growth in iPhone sales at 4%.

For a competitive analysis, threat from rivals was not that high in 2015. Samsung managed 84 million unit sales worldwide, compared to Apple's 48 million for 3Q 2015. However, most of the former's sales were from its mid to low-end smartphones, resulting in lower revenues. Despite having dispatched a lower number of devices, Apple attained a 3Q year-over-year revenue growth of 22.2%, as opposed to Samsung's 6.3% for the same period. The trend will continue to favor Apple going forward.

UBS's analysts believe that investors may wrongly undervalue the tech company, based on declining smartphone growth. With earnings that will potentially beat analyst es timates, Apple's stock becomes highly attractive, and therefore UBS gives it a Buy rating. The 12-month target price has been set at $150, compared to Wednesday's pre-market rate of $121.06.

Source: Apple Still Going Strong Despite Smartphone Growth Slowdown: UBS