Apple Cuts Component Orders for iPhone 5 Despite Robust Demand

Apple's iPhone 5 | Apple Official Website

Apple’s iPhone 5 | Apple Official Website

It was recently reported that Apple reduced the component orders for iPhone 5, causing “great confusion” to market watchers. However, there were claims that the order cut stemmed from improved yields and supplier shifts.

Order Cuts for iPhone 5 Components, Not a Sign of Weak Demand

According to Sterne Agee analyst Shaw Wu’s note to investors last Tuesday, his checks with the suppliers indicate that there is a robust demand for the iPhone 5. He is also not concerned with the recent reports that the order cuts were a sign of weak demand for iPhone 5.

It should be recalled that Apple-centric website AppleInsider reported earlier this week about the company reducing part orders for iPhone 5. As posted on the website:

Apple reportedly sent word to suppliers in December that it would be reducing parts orders for the recently released iPhone 5 on “weaker-than-expected” demand, with some orders being cut in half from original expectations.

Wu’s comment is in addition to a growing chorus of industry pundits who believe that the order cuts for iPhone 5 components do not represent consumer interest. Mark Moskowitz of J.P. Morgan said that the reports are just “more noise;”while Wells Fargo’s Maynard Um said that any cuts are actually “not news.”

Furthermore, Wu believes that the reduced orders for the iPhone 5 components are a result of improved yields. This has prompted Apple to place fewer orders for components. He also added that supplier shift have contributed to the cuts.

Apple’s “Trickiest” Quarter is Coming

With Apple’s future gaining so much attention, the analyst thinks that guidance for the company’s March quarter will be the “trickiest” that he can remember.

In relation to this, he expects that Apple will provide “vintage conservative” guidance, as it has traditionally done. But while investors would shrug off Apple’s soft guidance in the past, some may view it as a sign of weak demand nowadays.

As for the Cupertino-based company’s recently concluded December quarter, Wu expects that Apple’s iPhone sales and gross margins will surprise investors to the upside. In relation to this, forecast calls for sales of 47.5 million iPhones, above market consensus of 46 million to 47 million. While it will have a gross margin of 38.7 percent compared to the expected 38.3 percent.

Nevertheless, the iPhone maker will report their earnings on January 23. Sterne Agee, on the other hand, has a price target of $840 for AAPL stock, with a “buy” recommendation for investors.

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