JP Morgan Says iPhone 5 Production Cutback No Big Deal..
The fast-and-furious global rollout of the iPhone 5 added to the execution risk. To alleviate risk, we believe that Apple pushed its suppliers with “white hot” build/order activity. Currently, there are indications the supply chain has seen 20% order cuts related to iPhone 5, but we are not alarmed. We estimate that the revised quarterly build capacity for iPhone 5 is 38M units, which is well above our sell-in estimate of 25M for Dec-Q and Mar-Q. Our total Dec-Q and Mar-Q iPhone (4/4S/5) unit estimates are 48M and 45M [...] We also believe that the adjustments occur as Apple evaluates the initial sell-though activity related to the 100 countries launch of the iPhone 5. Given the order cuts are a statement on the Mar-Q, we think there is plenty of time for the build activity to be reset higher or lower.
One of the things that seems puzzling is that Apple sold 37 million iPhones last Q1 along with 15.4 million iPads. This year everyone is predicting iPhone and iPad sales to each increase by at least 10M yet overall earnings are supposed to drop from $13.87/share to around $13.46. Even with margins shrinking because of the cost of the newly introduced products that number really doesn't add up.
If sales are anywhere near the analysts estimates then earnings should be huge. And with the $10B buyback scooping up nearly 2% of all shares, the buyback should partially offset the affect of shrinking margins. People are going to be surprised by just how big Apple's earnings are when they are released in January.