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Tuesday, March 05, 2013, 10:44 am PT (01:44 pm ET)

Apple unused to being attacked, must adjust to new role on defense, analyst says

Apple has bested most all of its competitors and is widely acknowledged to make some of the highest quality products in the world, but now a new report says the tech giant will have to adjust to its new role as an industry heavyweight, a change from its traditional underdog status.

iPhone

With the iPhone, Apple is in the unfamiliar position of having to fend off competitors.


In a report titled "Identity Crisis: Can Apple Play Defense?" UBS analyst Steven Milunovich reiterates his previous 12-month rating for AAPL, calling the stock a Buy and targeting $600 as a price. The report cautions investors to remain patient with the stock, though, as the trend for AAPL is still likely to show more downside before it moves back upward.

The report notes, though, that Apple is in somewhat unfamiliar territory as a company. Once Microsoft's Windows achieved dominance in the OS wars, the Mac was relegated to a niche position, with a core of loyal users but diminishing share as the PC market grew ever larger. With the iPod, Apple finally achieved a leadership position, and the company never faced any serious competition in the media player segment.

Now though, Milunovich writes, the iPhone and iPad "are the first times Apple has had a leadership position drawing significant and competent competition." That competition comes in the form of an array of Android handset manufacturers, specifically chief Apple rival Samsung. Apple maintains significant leads in terms of profitability, product quality, and overall product ecosystem, but its competitors are looking to close the gap.

Apple, says Milunovich, is caught between its traditional focus on product quality with high revenues and investor demands for both lower-priced and larger-screened phones to compete Android devices. Milunovich is doubtful that Apple will rush out a five to six-inch phone in order to address those demands, saying that most companies would probably do so but that Apple likely won't.

"It doesn't appear to be in Apple's DNA to cover market spaces just to get revenue," the report concludes.

The report points toward innovation in new product areas as a potential way for Apple to deal with increasing competition. Others have previously pointed to rumored devices such as the Apple iWatch as a way of growing revenues even as the premium smartphone segment approaches saturation.