Are Troubling iPhone Reports Needless Noise?
With Apple (NASDAQ:AAPL) plunging on Monday after reports that sales of the iPhone had been significantly below expectations this quarter, the company’s bulls got into damage-repair mode. JPMorgan’s Mark Moskowitz wrote in note to clients that the latest news reports were nothing more than noise and that the sell-off that followed was overdone.
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“In our view, this is just more noise around the supply chain as the order cuts have been discussed in media reports over the last few weeks and a topic we had discussed previously on December 19,” Moskowitz wrote, reiterating an Overweight rating and a $770 price target on the iPhone maker’s stock.
The analyst added that the order cuts may actually be a result of improving supply of the smartphone. “We believe the bigger message related to any potential order cuts could be that iPhone 5 manufacturing yields and thereby gross margin are on the rebound,” he wrote, according to Barron’s. “In our view, the potential order cuts are a direct result of manufacturing yields improving following the fast-and-furious product roll-outs of the iPhone 5 as well as new iPads and Macs. We had written previously that Apple had to absorb cost overage (due to poor yields) in the building of iPhone 5 and iPad mini. In our view, recent order cuts could suggest that the manufacturing yields are improving on the iPhone 5, and as a result, this could be another reason that Apple pulled back on excess orders of certain components.”
Moskowitz reiterated a previous estimate of Apple having sold 48 million iPhones in the last quarter and predicted sales of 45 million this quarter, adding for good measure that his firm was absolutely confident in those predictions. “Even if we assume that Apple has cut iPhone 5 orders in half from the 65 million that the Nikkei reported, it implies upside to our current estimates,” he said.
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