Apple shares hit hard by reports of production cuts

November 9, 2011: 10:56 AM ET

Rumors of a slowdown in iPhone 4S sales called "off base." iPad may be a different story

[UPDATE: As several readers pointed out, Apple's share price was also hit Wednesday, along with the rest of the market, by the news out of Europe, and by the end of the day had suffered less than the NASDAQ, which fell 3.88% to Apple's 2.7%. Thursday, however, was a different story. By early afternoon, Apple had shed more than $13 (over 3%) even as the broader market moved higher.]

Apple (AAPL) shares opened down $9.23 (2.3%) following a report Wednesday in Taipei-based DigiTimes that the company had "slashe[d]" iPhone and iPad component orders for the holiday quarter, traditionally Apple's biggest.

"According to a Chinese-language Commercial Times report," DigiTimes' Cage Chao and Steve Shen write, "Apple is likely to adjust downward its shipments of iPhones and iPads from related suppliers by 10-15% in the fourth quarter."

Some analysts were quick to dismiss as "off base" any rumors of a slowdown in iPhone 4S sales.

"The report is at odds with what appears to be continued strong iPhone 4S sellthrough at multiple carriers/countries globally," wrote RBC's Mike Abramsky. He attributed a component cutback -- if there is one -- to "typical Apple over-ordering."

Piper Jaffray's Gene Munster was even more adamant. "We believe recent chatter around iPhone 4S production cuts is off base," he told clients in a note issued Wednesday. He notes that when his team called 30 Apple stores on Monday, 57% were completely sold out of the iPhone 4S and the others all had stockouts of one model or another.

On the other hand, Ticonderoga's Brian White, who monitors an Asian supply chain "barometer," reported a 22% drop in part sales between September and October for some key Taiwanese Apple component suppliers. That would support reports of a cut in Apple orders. White, however, attributes October's "big miss" to an unusual bump in Apple's part orders in September in advance of the iPhone 4S launch, which would have skewed the month-to-month comparison.

And Rodman & Renshaw's Ashok Kumar reported that production volumes for the iPad 2 in the December quarter seemed to be coming in 1 to 2 million units below the Street's consensus of 14 to 15 million.

Kumar, however, saw no slowdown in iPhone production, which suggests that the DigiTimes report may have conflated the iPad's supply chain with the iPhone's.

UPDATE: UBS' Maynard Um has looked at the rumors and reached the same conclusion: "We believe any order adjustments are more likely to be around iPad rather than iPhone ahead of a likely new launch in 1Q12."

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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