The most bearish thing we've read about Apple

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Analysts at Oppenheimer are lowering their view of Apple… again.

The company is usually beloved by investors. 39 of 45 analysts tracked by Reuters think the company will outperform the market in the coming months. Which makes the negative outlook even more surprising.

“We downgraded on April 27 at $US104.35 based on a bearish outlook for the iPhone 7 cycle. We believe incremental design changes this year will not be compelling enough to drive an upgrade cycle and continue to believe the 7 cycle will undersell the 6S cycle,” Andrew Uerkwitz, an analyst at Oppenheimer, said in a note to clients.

Oppenheimer did not provide an updated price target for Apple, but did lower its earnings per share estimates for FY17 from $US9.04 to $US8.18 and revenue estimate from $US222 billion to $US209.1 billion. Oppenheimer rates Apple ‘market perform.’

Why such a negative view?

It has to do mostly with the next iPhone. Most agree the next device released by Apple won’t be anything to write home about. The phone is rumoured to be slightly thinner, have a better camera, and mostly look like the previous model. The biggest change will probably come from the removal of the headphone jack, which is already upsetting users.

Uerkwitz is also bearish because of a perceived lack of innovation at Apple.

“The updates in iOS 10 (to be released with iPhone 7) announced during WWDC are reactions to mounting pressure from platform competitors that offer products and services that are device-agnostic, such as voice assistant, AI, and messaging apps. This changing interface is the biggest threat in our view to Apple,” he said.

Apple has also been falling behind in innovating in the virtual reality space. Samsung will be broadcasting 85 hours of VR content from the Rio Olympics in partnership with NBC, and will only be available on Samsung’s Gear VR platform.

“Although mobile VR is still a very niche market, this example — among many others — shows that Apple’s passive role in the market may lead to more users holding off from upgrading,” Uerkwitz said.

It’s not the end of Apple, though. The next iPhone upgrade is expected to be much more exciting than the current one, and other hardware innovations from the keep the company at the top of the tech hardware market.

“Longer term, we see tremendous value in the Apple ecosystem and its ability to monetise its user base. Apple’s substantial capital return program should provide downside protection, making this a Perform-rated stock,” Uerkwitz said.

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