Sterne Agee Encourages Apple to Pursue Larger iPhones

Sterne Agee analyst Shaw Wu told clients on Tuesday that Apple needs to think different[ly] about making a larger iPhone, arguing that the company has ceded perceived control of the high end of the smartphone market.

From the research note, "The big question we get from investors is whether the greatest turnaround and growth story of the past decade is over? Our answer is no but we do believe that AAPL needs to think different and change its strategy to regain its mojo."

Mr. Wu offered two suggestions for doing so. The first was to "reclaim high-end leadership as iPhone 5 isn't viewed as high-end anymore." He argued that large-screen devices from Samsung and even HTC are being perceived as more advanced because of those screens.

From the note, "What looked initially like a risky attempt by Android partners Samsung, HTC, Motorola, and others to differentiate against iPhone, in building larger touchscreen smartphones that many ridiculed as too big, ended up being a much bigger success than most expected."

He said that in some markets around the world, Samsung's Galaxy SIII and Galaxy Note II are perceived as the market leader, and that Apple should take that crown back with a larger iPhone. He didn't specify, but said that his own supplier checks found "evidence of progress" on this front.

The second suggestion Mr. Wu offered was for Apple to get "more aggressive" about the mid-range of the smartphone market. He specified that he is not in the camp that wants Apple to muck about in the low [and unprofitable] end of the market, but said that Apple's margins for iPhone 4 and iPhone 4S are attractive, and that Apple should get more serious about making those devices available in all markets where they are in demand.

"The company itself admitted on its conference call that it is supply constrained," the analyst wrote. "From our supplier checks, we believe this isn't because of components but because iPhone 4 and 4S manufacturing capacity had been scaled back in favor of iPhone 5."

Mr. Wu maintained his price target of $715 and a "Buy" rating on $AAPL.

Shares of Apple jumped on Tuesday, ending the day at $457.844, up $15.528 (+3.51 percent), on volume of 20.4 million shares trading hands.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.