Analyst Cuts Apple Rating on Prospect of iPhone Subsidy Revolt

Now here are two words you don’t often see in the same sentence: Apple and downgrade.

Yet here they are in a note from BTIG Research’s Walter Piecyk, who this morning cut his rating on the company’s shares to “neutral” from “buy.” A shocker of a call, coming as it does when Apple shares are so ascendant that some analysts have slapped a staggering $1,001 price target on them. But Piecyk has his reasons, and they’re worth considering, even as AAPL shrugs them off in midday trading. Top among them: He believes Apple’s carrier partners are tired of offering such high subsidies on the iPhone, which eat into their own margins while delivering huge ones to Apple. And soon they’re going to begin reining them in. “Subsidies by post-paid wireless operators have fueled the growth of Apple’s $600 iPhone since its inception,” says Piecyk. “Wireless operators have been happy to subsidize smartphones to new and existing customers in order to provide a lift to the average monthly bill (ARPU) of their customer base, a metric which had been falling for the past three decades.” But now that the pace of the smartphone upgrade cycle has quickened, subsidizing iPhone upgrades only one year into a two-year contract is becoming a costly proposition.