Pacific Crest: Apple's iPhone Business Is Going To Be Dead In The Water

Pacific CrestApple is going to be selling to upgraders who aren't all that interested in upgrading.Apple is going to be trading sideways for the next twelve months, says Pacific Crest analysts Andy Hargreaves and Corey Barrett in a note this morning.

They are downgrading the stock to "sector perform" and giving it a price target between $440 and $550 for the next twelve months.

They believe Apple has real long term problems.

The high-end market for smartphones and tablets are going to be saturated sooner than expected which will lead to poor growth for Apple.

They say that demand for "incremental" hardware improvements is "waning." Essentially, they don't believe people will continue to upgrade to a new iPhone. If the market for new iPhone buyers is already maxed-out, and the market for upgrading iPhones is weak, then Apple's iPhone business is going to struggle.

While the iPad should pick up the slack for Apple in terms of slowing iPhone growth, the truth is the iPad Mini, which is relatively inexpensive will hurt Apple's revenue and EPS growth.

There is nothing on the horizon that will provide a jolt of growth, either, they argue.

An Apple television isn't going to be a huge business like the iPhone. It will make less money and sell in smaller units.

A cheaper iPhone will create the same problems the cheaper iPad Mini creates — cannibalization of existing sales and profits.

Software and services revenue from products like iTunes and iCloud aren't going to be enough to accelerate the earnings of a company as big as Apple.

In short, Apple is an iPhone company. The days of the iPhone's mega growth are over and thus, Apple's fantastic stock run is too.

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