Apple 2.0

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Apple supply chain alarm bells

March 11, 2013: 10:20 AM ET

More selling pressure on Apple from reports that supplier orders have been cut

Screen Shot 2013-03-11 at 5.38.12 PMFORTUNE -- Apple's (AAPL) share price was hit again Monday morning after several analysts reported that the company's orders to its suppliers are down. According to Topeka's Brian White, who monitors these things on a monthly basis, February's report was the worst on record.

UPDATE: The stock recovered, to say the least, at the end of the day. See Apple shares spike suddenly on high volume.

Below: Excerpts from several analysts' Monday notes, plus what CEO Tim Cook had to say about such reports at Apple's January conference call.

Brian White, Topeka Capital: February Apple Monitor Sales Miss Seasonal Trends. Final February sales for the Apple Monitor fell by 31% MoM, much worse than the average 8% decline over the past seven years, or when excluding a January Chinese New Year, down 15%. The Apple Monitor delivered the worst February we have on record. Most of the preliminary Taiwan Monitors experienced weaker than average trends this February including Apple supplier Hon Hai Precision with a 25% MoM sales decline in February. Maintaining $888 price target.

William Power, Baird Capital: Concerns mounting near term. Checks by Baird's semiconductor team suggest iPhone 5 and total iPad procurement orders near our shipment forecasts, but below consensus. This appears to be consistent with our growing demand concerns exiting Mobile World Congress and already below-the-Street estimates. Additionally, we now expect a higher mix of iPad Minis, negatively impacting revenue and margins. Maintaining $465 price target. 

Avi Silver, CLSA: Curbing our enthusiasm. Weaker iPhone trends continue to dictate the trajectory of Apple shares. We are comfortable with our Mar-Q estimates but lower our Jun-Q forecasts, reflecting lower iPhone sales and weaker iPad mix. Following a Jun-Q product lull, we expect new products (including iPhone mini) to expand Apple's emerging markets offering and return Apple to EPS growth in C2H. Also, increased cash returns could arrive in the next few weeks. However, a much-needed larger screen iPhone is unlikely in 2013, which could impact high-end smartphone share. Lowering price target to $505 from $575.

And finally...

Tim Cook, From Apple's fiscal Q1 2013 Earnings Call:  "I know there has been lots of rumors about order cuts and so forth and so let me just take a moment to make a comment on these. I don't want to comment on any particular rumor because I would spend my life doing that but I would suggest it's good to question the accuracy of any kind of rumor about build plans and also stress that even if a particular data point were factual it would be impossible to accurately interpret the data point as to what it meant for our overall business because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supply performance can vary. The beginning inventory positions can vary, I mean there is just an inordinate long list of things that would make any single data point not a great proxy for what's going on." (Transcript)

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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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