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Is Apple Fearful of a Consumer Slowdown?


One month after Apple (AAPL) founder and mastermind Steve Jobs handed over the reins of the company he built, new CEO Tim Cook could be facing is his first real challenge: Slowing demand.

According to a research note by JP Morgan analyst Mark Moskowitz, the Cupertino, CA computer giant has slashed orders to its Asian suppliers of iPad parts by 25%. While there has been no corporate confirmation, if true it would mark an unprecedented scale back of demand that would bode poorly for the broader technology sector.

So what caused Apple to make such a drastic move? Business Insider founder and Daily Ticker contributor Henry Blodget joined me to put the story into context.

For starters, the order reduction could simply be a matter of metrics, as in, whose order number is being reduced; Apple's, suppliers', analysts' or others. Notably, Moskowitz made no change to his iPad shipment forecasts of 10.9 million for Q3 and 12 million for Q4.

Another reason could be the typical ramp-down of a current generation model that precedes the ramp-up of the next, e.g. the move from iPad 2 to iPad 3. But this product transition theory falls apart in the surprise department. Apple knows full well when it will make the move to the next new iPad, therefore won't allow itself to get stuck with too much supply.

Other possible reasons of the alleged cutback include: Weakening demand (especially in Europe, which accounts for nearly 30% of Apple's global sales), a tactical move by the new CEO to simply run leaner with less inventory, or what Blodget calls "the bad-ass competitor hypothesis."

According to Blodget, the thinking goes that Apple purposefully over order parts to lock out competitors. Then late in the quarter they scale back knowing it's too late for rivals to react and too bad for suppliers who wouldn't dare mutter a bad word about their sugar daddy.

What is know for sure is that in the brief 30-day period that Tim Cook has been in the top job, Apple has outperformed the benchmark indexes and also hit an all-time high of $422 a share last week. As it stands now, the biggest public company in the world is worth about $375 billion, making it roughly $40 billion or one Ford (F) larger than oil giant and second largest company, ExxonMobil (XOM).