As riots broke out in a Foxconn factory (Hon Hai Precision Industry Co., Ltd. (TPE:2317), there was increasing concern among investors, that Apple Inc. (NASDAQ:AAPL)’s new iPhone 5 deliveries could be delayed (there was a slight drop of concern over working conditions in the factories as well). However, many think these concerns are unwarranted (in terms of churning out iPhones, not the people there), and we have some eyewitnesses who say there is little reason to be worried. In fact, macro concerns over the Chinese economy could be the biggest issue.
According to CLSA, (Hon Hai Precision Industry Co., Ltd. (TPE:2317) plant in Taiyuan, Shanxi province is back on line after violent protests over the weekend, in which 40 people were injured. Tech analyst Chitra Gopal sees little impact on (Hon Hai Precision Industry Co., Ltd. (TPE:2317), and less on Apple Inc. (NASDAQ:AAPL). However, the incident highlights the inevitable dissatisfaction stemming from dull work at wages that don’t go as far as they used to.
Analysts from Mizuho Securities are visiting Asia and conducting channel checks. They state that conversations with supply chain vendors in Taiwan and Korea reaffirmed their view that the PC market slowdown will continue in the near term. There is lack of visibility around consumer spending and suppliers are approaching their planning processes with extreme caution. Enterprise spending remains steady while consumer slowdown is shifting spending away from PCs to tablets and smartphones. Apple Inc. (NASDAQ:AAPL)’s iPhone 5 is driving the production processes at full steam while demand for older generation iPhones has not dropped off. Mizuho now expects upside to estimates for the Sep and Dec quarters.
Macro conditions remain the biggest factor impacting near term
Mizuho analysts’ conversations with all the vendors centered around the global slowdown whereby consumer spending remains constrained across all regions while enterprises continue to spend based on their budget cycles. The slowdown is clearly impacting consumers’ spending decisions and is creating a shift in wallet share as tablets and smart phones continue to do well at the expense of PCs and other technology products. On the commercial side, spending on data center related products (storage and networking) remains strong while server sales are accelerating, but they remain below initial expectations. They expect data center levered names like EMC Corporation (NYSE:EMC), VMware, Inc. (NYSE:VMW) and Red Hat, Inc. (NYSE:RHT) to benefit from the continued strength in data center spend.
Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) likely to lose market share over the next few quarters
While there is lack of visibility in the PC space and confusion continues to surround which form factors will ultimately win favor with consumers, especially with the launch of Windows 8, Asian PC vendors are targeting the market more aggressively with many new designs. Also, Microsoft Corporation (NASDAQ:MSFT)’s decision to build its own tablet has created some concern among other OEMs that is impacting their resource allocation decisions at this point. Given their lack of focus on the consumer market, Mizuho expects Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) to continue losing market share.
Apple to maintain its pole position in the tablet market
In addition to the continued strong performance by the iPad lineup, the tablet market is experiencing strong momentum at the lower end (sub-$200) as well. Apple Inc. (NASDAQ:AAPL)’s anticipated launch of iPad mini should further help drive the lower end market where bar has been raised significantly for Microsoft Corporation (NASDAQ:MSFT). The upcoming Win8 launch could help Microsoft Corporation (NASDAQ:MSFT) gain some traction but price still remains high.
iPhone 5 production process running at full steam
There is significant optimism around iPhone 5 and suppliers are running their production units at near peak capacities. They expect the strong momentum to continue at least through October and November. Apple Inc. (NASDAQ:AAPL) should also benefit from the price reduction of iPhone 4 and 4S as demand for those phones has not tapered off.