Apple under rare pressure amid subsidy fears

Apple shares have been under rare pressure over the past few days amid fears that its famous upper hand over carriers may be weakening. Analysts are expressing concern that operators may reduce the iPhone subsidies they are prepared to pay, as they have a rising number of other competitive devices to offer, especially in LTE. More generally, many carriers are looking to reduce the subsidy bills which eat into their profits, and this could hit the iPhone, whose model is more dependent than most on heavy cellco support.

The speculation was sparked by Verizon Wireless' decision last week to start charging customers $30 to upgrade to a new handset. But this is part of a wider range of changes to carriers' device charging policies, aiming to boost profits and reduce dependence on phonemakers. There is a general shift towards prepaid services and casual usage, even among high value customers; and operators like T-Mobile have been vocal about reducing their subsidy bills.

Apple's stock price fell at its sharpest rate for almost six months on Monday, by 3.8%, after previously rising by 49% since the start of the year. Walter Piecyk, an analyst at BTIG, said in an interview with Bloomberg: "Operators are trying to fight back against the impact that Apple is having on their business."

Other commentators have also raised concerns about the iPad and whether its huge market lead would start to be eroded. In a research note, Wedge Partners wrote that demand for the latest iPad could be waning, raising the specter of Apple missing Wall Street forecasts for tablet sales in its first quarter results, which it reports next week. Of course, Apple always lives under the pressure of inflated expectations.

Even the slightest slip would have a disproportionate impact on its share price, given that few expect the iPad to lose much of its major lead during 2012. The second best selling tablet, the Amazon Kindle Fire, largely targets a different user profile from the iPad, with its smaller screen, lower cost and differentiated content stores. The other main challengers this year are likely to be the revamped Samsung Galaxy Tab and potentially Google's own-branded Nexus slate.

However, despite the competitive free run the Apple device still has, the Wedge Partners analysts wrote: "Is Apple best name in tech? Yes. Have we seen the stock price plummet in the past, when expectations were out of whack with results? Yes. In our view, there is some risk to this happening again in the March quarter, and the result would likely be the stock coming back down to earth."

Apple is widely expected to counter competitive pressures by launching lower end iPad and even iPhone models this year. A smaller, cheaper tablet could enable it to expand its current slate base into Amazon's territory, since unlike the other affordable tablet offerings, it can match the giant retailer in terms of integrated apps and content. The long rumored 'iPhone nano' could target prepaid and emerging economy markets, where the venerable Apple subsidy model breaks down.