The One Apple Analyst Who Says ‘Sell’ as the Stock Keeps Climbing

Photographer: David Paul Morris/Bloomberg

Shoppers Andres Moran, left, and Mckiernan Flaherty checked out Apple's iPhone 4S at a store in San Francisco last year.

There are 57 Wall Street analysts in Bloomberg’s database who follow Apple Inc., and only one of them has a “sell” rating: Edward Zabitsky.

His reasoning? Zabitsky, an analyst at Toronto-based ACI Research, doubts Apple will be able to maintain the margins of its top product, the iPhone. He’s betting that a new web standard called HTML5 will overcome some of the deficiencies of web apps that led to the rise of so-called native apps, the type sold in Apple’s App Store.

Web apps — applications that are accessed through a mobile Web browser — are useless if the phone isn’t connected to the Internet. HTML5 apps will allow users to do some off-line activities, such as working on documents that can later be synched over the web. 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, he says. The move to speedier 4G cellular networks and the increased availability of Wi-Fi hotspots will also make the web apps more useful.

As a result, he expects iPhone prices to tumble to better compete with Android and Windows phones. Over time, he predicts the gross margin on the iPhone will fall from more than 50 percent to about 25 percent — roughly the same as the iPad and Mac. Or maybe worse. Since Samsung Electronics makes many of the parts used in its own phones — displays, chips, modems — it will be able to undercut everyone, including Apple.

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

Zabitsky also says cell carriers are getting tired of watching profits from iPhone sales accrue to Apple.

“I think carriers’ attitudes are already changing,” he says, citing a recent promotion in which Verizon offered more data per month to owners of Android phones.

Zabitsky is not the only one who has predicted the fall of Apple. The AAPLinvestors blog, in fact, maintains a list of bearish quotes from analysts, executives and others on its iPhone Death Watch page.

That long list includes a few of Zabitsky’s calls. In 2009, for instance, he made a similar point about how Apple is not profitable for carriers and that its hardware “will eventually become irrelevant.” Apple’s shares were around $210 then.

Yesterday, Apple’s stock rose to $509.46 at 4 p.m. New York time. Zabitsky had a target price of $270. That compares with $575.56, the 12-month consensus estimate among analysts surveyed by Bloomberg, and the $700 price set by Hudson Square Research analyst Daniel Ernst.

It hasn’t been easy sticking by his sell recommendation, which is more than a year old. Zabitsky says he didn’t foresee how poorly Nokia and Research In Motion would do during that time, and admits he should have waited longer to play his hunch about the rise of HTML5.

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

Apple isn’t the only one on his negative list. He’s got a sell on twelve of fifteen companies he covers, including Cisco, Broadcom and Juniper. His only buys are on Alcatel-Lucent, the European telecommunications equipment maker, and a company called Emcore Corp., which makes optical components for the networking industry.

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