Apple Conviction Sinks at Goldman Sachs (Update 2)

Updated from 10:10 a.m. EST to provide more analyst comments regarding iPhone unit cuts in the the ninth paragraph.

NEW YORK ( TheStreet) -- Just when you thought it was safe to go in the water with Apple ( AAPL), Goldman Sachs says wait a minute.

The New York-based investment bank removed Apple from its Conviction List, cutting its price target to $575 from $660, citing concerns about market share and new user growth. Goldman also lowered its earnings outlook on Apple for the calender year to $44.64 per share, down from $47.29.

Of particular note, Goldman said Apple is likely to miss consensus estimates for both the March and June quarters. Analyst Bill Shope lowered his 2Q estimates to $39.4 billion in sales and $8.88 per share in earnings, down from $42.69 billion and $10.26 per share, respectively. Shope also cut his iPhone and iPad estimates, and now expects Apple to sell 30.9 million iPhones, down from 33.4 million, and 18.4 million iPads, down from 22.4 million in the June quarter.

Shope noted that the iPhone 5 has been less successful than he previously estimated, generating fewer new users and fewer people upgrading to the new handset. the Goldman analyst cut his estimates in the June quarter on the notion that customers will wait to replace their current phones ahead of the pending iPhone 5S, and that Apple will aim to cut inventory at retail outlets such as Best Buy and Verizon to bolster sales of the new product.

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"Despite our optimism on this front, we believe the stock's outperformance over the next 12 months will be more closely tied to whether or not the company's next product cycles can reinvigorate market share momentum and installed base growth," Shope wrote in his report. The Goldman analyst is nonetheless optimistic that a new iPhone, iPad and perhaps other products will reinvigorate Apple's growth and its user base.

Tor the moment, the timing is uncertain. "Until this uncertainty is resolved, the stock's upside potential should be more limited than we previously anticipated," wrote the analyst.

Shope also notes that he expects Apple to introduce a low-cost iPhone around the third quarter of this year. Recent rumors suggest Apple will refresh the iPhone in this time frame with the iPhone 5S, and perhaps a low-cost iPhone as well. Other Wall Street analysts have mentioned low-cost iPhones as being a likely product, so there appears to be some credence to this message. A low-cost iPhone could provide "substantial upside to our unit expectations in the back half of the year and into 2014" as Apple brings more customers into its ecosystem.

There have been concerns that a lower-priced iPhone would not be as good as the current one but CEO Tim Cook said, "The only thing we'll never do is make a crappy product. We're going to make a great product. And so that's the only religion that we have is we must do something great, something bold, something ambitious."

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