Yahoo finance AAPL 20130114

AAPL fell briefly below $500 this morning following The Wall Street Journal and the Nikkei newswire reports of the iPhone 5 part orders halved amid what’s being claimed a ‘weaker-than-expected’ global demand for the handset. Specifically, shares briefly sank to $497 in pre-market trading Monday as investors reacted to the news.

It’s the first time since February 2012 that AAPL tanked below $500 a share. AAPL lost nearly 26 percent since a September 2012 all-time high of $705.07 a share. In the last three months alone, the Apple stock lost seventeen percent of its value. Rival Samsung seized its opportunity, having released this morning official numbers proving flourishing sales of its Galaxy S smartphone series, which surpassed the accumulated sales record of 100 million units (from the supply side) since its launch in May 2010…

According to Nikkei and The Wall Street Journal, Apple has reduced its original target to order 65 million iPhone 5 displays this quarter by about half.

“Apple’s orders for iPhone 5 screens for the January-March quarter, for example, have dropped to roughly half of what the company had previously planned to order”, two of the people told the Journal.

The company is set to announce its fiscal 2013 first-quarter earnings on January 23 and one analyst is expecting the conference call to file as the most important in a decade amid ongoing concerns about Apple’s future prospects.

Barclays Capital’s Ben A. Reitzes wrote in a last week’s note to clients (via AppleInsider):

Momentum can change quickly among the leaders in disruptive mobility — along with sentiment. If Apple can prove yet again it is more than a handset company, then we believe shares can recover.

The iPhone typically accounts for nearly half of all Apple’s revenues and more than half the company’s profits. Analysts are expecting holiday-quarter iPhone sales of up to 50 million units.

 

As StreetInsider.com correctly points out, investors are making decisions based on a month old information. In a December 14 note to clients, Jefferies analyst Peter Misek wrote they have seen large order cuts in Apple’s supply chain for the iPhone because “the assembly bottleneck has not improved as much as hoped”.

 

Other analysts opined at the time that Apple didn’t need as much parts because because its supply chain had caught up with an early shortage of devices. While only one source today said Apple was cutting just display orders in half for the March quarter, another claimed the company did trim component orders beyond just display panels.

These four-inch displays also go into the latest iPod touch so it’s possible that stagnant post-holiday media player sales could be a factor. Additionally, Apple may be re-shuffling its display suppliers and adding new suppliers to the mix.

iPhone 4 Manufacturing

A more plausible explanation: Apple is switching to a mid-cycle iPhone hardware update so it’s expected it would cut iPhone 5 component orders ahead of the iPhone 5S, believe to be arriving in May or June. I’m also thinking that the high-end of the smartphone market is reaching a saturation point, hence all the recent talk of a less-pricey iPhone. One analyst said as much in a Bloomberg article today:

We’re getting close to saturation. The real growth is going to come from emerging markets, and Apple’s share in emerging markets is much lower than it is in other markets at the moment due to such high prices.

In developed markets, about 75 percent of handsets sold already are smartphones, Cordwell said. In emerging markets like China and Brazil, smartphones are about to explode, especially cheaper models. Apple won’t “blindly pursue market share”, says its marketing honcho Phil Schiller.

 

Other publications are also questioning today’s report and more analysts will likely follow suit as the day goes on. Apple rumormongering back in 2010 became the target of a SEC probe into channel checks and the connections between financial analysts and the companies that supply parts for Apple products.

Top chart via Yahoo Finance.