Wedge Partners

Apple whipsawed by dueling supply chain reports

July 9, 2013: 8:43 AM ET

One says Apple is cutting iPhone production, another says Foxconn is staffing up.

Screen Shot 2013-07-09 at 6.56.53 PMFORTUNE -- In the silly season before Apple's (AAPL) quarterly earnings report, the stock is especially sensitive to rumors coming out of the company's Asian supply supply chain. So with fiscal Q3 earnings due in exactly two weeks, what are we hearing?

  • On Monday, Wedge Partners' Brian Blair told clients he believed the company had cut iPhone production for the second half of 2013 by 20%, from 115-120 million units to 90-100 million. Given that Apple sold fewer than 75 million iPhones in the second half of 2012, either range represents more growth than Apple's current valuation would suggest. But that didn't stop Wall Street from knocking $11 off Apple's share price in mid-morning trading. The stock finished down $2.37 for the day.
  • Apple shares popped briefly overnight after Want China Times reported that Foxconn had begun a "large-scale recruitment drive," hiring new assembly workers "as the sizable production of the iPhone 6 has begun." It's not clear what the paper meant by "sizable production" or, for that matter, by the "iPhone 6." In any event the stock opened down $1.19 on Tuesday morning.

Meanwhile, Wall Street seems to have missed the lead that Wedge Partner's Blair buried in his fourth bullet point:

"China Mobile iPhone Launch in 2H: We expect one of the versions of the plastic-backed low-end iPhones to be a TD-SCDMA targeted at China Mobile. We anticipate this handset will launch in CYQ4 and believe initial production for the China Mobile model to be in the 10 million unit range for the first 30-60 days of TD-SCDMA production. China mobile currently has 730 million subscribers and represents the single biggest untapped carrier opportunity for Apple."

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