The "unthinkable": Analyst downgrades Apple

(MoneyWatch) Talk about fighting the tape. At a time when some analysts are predicting Apple's (AAPL) stock price will top $1000, creating the first trillion-dollar company, one has downgraded the stock. BTIG Research analyst Walter Piecyk dropped Apple from buy to neutral.

Piecyk's reasoning is that cell phone carriers are tired of subsidies -- the difference between what they charge customers and what they pay Apple for each iPhone and iPad sold. So they're already clamping down on how often they'll let customers upgrade. As  carriers take a harder line, Piecyk predicts, Apple could see a $1 billion shortfall in profits this quarter.
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Here's a look at some of the challenges facing Apple, starting with the looming battle over handset subsidies:
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Apple isn't the first company that has tried to change the balance of power with carriers. Google (GOOG) made an attempt with the original Nexus One, which was supposed to convince consumers to buy unlocked handsets. Google didn't get very far on that one: It turns out most people don't want to spend $500 or more for a phone.

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Apple has been the hardware tail wagging the wireless dog for a while now. Among other things, It manages to push non-standard size SIM cards (the little chip that authorizes phones on many carriers worldwide) and offers significantly lower margins to retail partners than other hardware vendors. Those are particularly big demands for a phone that isn't offered exclusively to one carrier. And if that wasn't enough, Apple expects carriers to pay a huge price for iPhones: Last quarter, the average selling price of an iPhone was $659. Given that consumers in the U.S. have an entry price into the new version of $199, that's hundreds that the carriers have to make up.

Sure, carriers expect to bear some subsidies. Executives justify the expense because free to moderately-priced handsets, especially the coveted iPhone, bring in business. The monthly bills for service are supposed to cover the initial investment and provide the carrier's profit. It's not a new business model: Give away the razors and make your money on the blades.

Carrier margins sink

But the rate of upgrades has increased and has driven down profitability at AT&T (T) and others in the business, according to Piecyk's analysis, as reported by John Paczkowski at AllThingsD:

Case in point: AT&T's wireless margins, which used to be more than 44 percent, are these days hovering around 30 percent (see slide at right). So, to raise margin levels back to where they once were, AT&T is implementing stricter upgrade policies.

Here's a graphic representation that AT&T provided in its last earnings call and that Paczkowski dug up:

Carriers may have tired of passing along so much of their potential margin to Apple. This would help explain reports that AT&T will spend more on promoting the Lumia, which runs Microsoft (MSFT) Windows Phone,  than it did on the new iPhone.The Lumia is made by Nokia (NOK)

AT&T also got hurt when competitor Verizon (VZ) finally got the iPhone and quickly shrunk the subscriber gap with AT&T. (Check this AdAge's graphic to see the dynamic.)

Other problems

Pushback from carriers isn't the only challenge facing Apple. Australian regulators said that Apple misled consumers by claiming 4G compatibility and data speed in Australia for its cellular-enabled iPads -- the devices only support the 4G frequencies used in the U.S. UK regulators have started an investigation into the same issue. It was a surprising, and uncharacteristic, error for a company with deep experience in dealing with cellular technology.

As the infomercials say, wait, there's more: There are apparently Wi-Fi issues with some new iPads. Although Apple has not publicly addressed them, the company reportedly has internally told support people to replace the devices and capture the affected ones for analysis. Clearly, a broader replacement program or even recall could hurt Apple.

Plus, there's the burgeoning interest by American and European regulators in e-book pricing, with Apple a major target of the investigations. And antitrust lawsuit, if it comes, could be messy and force Apple to back down from pricing strategies designed to pull publisher support away from Amazon (AMZN).

For the company that investors have thought could do no wrong -- and that has shown brilliance in strategy and execution -- there are some dark clouds on the horizon.

Image: stock.xchng user barthetzk