According to J.P. Morgan’s Mark Moskowitz, last year’s holiday season was a blockbuster for iPhone 5. However, iPad sales may have been lighter than expected due to supply issues. He even added that his team’s research indicates that near-term supply constraints affected the tablet’s sell-in activity by the end of November 2012.
Prior to this, Moskowitz predicted that Apple will be able to sell 20.1 million iPads during the December 2012 quarter. However, he trimmed down his estimates to 18.4 million units.
While lighter iPad units could frustrate investors, we believe the miss is explainable. In our view, it was supply—not demand—issue.
Demand for iPhone 5 is NOT Waning
Although sales for iPad could be soft, Moskowitz dismissed recent concerns that demand for iPhone is waning. That sentiment came at the heels of The Wall Street Journal, saying that component orders for Apple’s handset were drastically reduced due to weak demand. Because of this, the company’s stock went below $500 this week.
In relation to this, Apple-centric website AppleInsider reported earlier this week about the iPhone maker 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.
Aside from him, Shaw Wu of Sterne Agee indicated in a note to investors last Tuesday that his checks with the suppliers are pointing for a robust demand for the iPhone 5. There is also Wells Fargo’s Maynard Um, who said that any cuts are actually “not news.”
On the other hand, Moskowitz believes that the Cupertino-based company’s gross margins could recover faster than expected, which he thinks is a major positive for AAPL stock.
In our view, many investors have been locking in gains on Apple and reducing the relative weighting of the stock in their funds because it was difficult to defend a stock where gross margin declines were expected in the coming year. This overhang stands to subside faster than expected, in our view, if component order cuts related to iPhone 5 imply manufacturing yields and thereby gross margins are on the rebound.
Because of the recent stock pullbacks, J.P. Morgan has reduced its 12-month price target from $770 to $725. However, they’ve maintained an “overweight” rating on Apple.