Apple Inc. (AAPL) Q4 Preview: iPhone 5 Supply Biggest Question

Apple Inc. (AAPL) Q4 Preview: iPhone 5 Supply Biggest Question
<a href="">JESHOOTS</a> / Pixabay

A report from Baird expects a solid fourth quarter performance from Apple Inc. (NASDAQ:AAPL) with the results due on October 25th.  Apart from the results the main focus will be on the comments regarding the supply of iPhone 5 in the first quarter next year.  Overall there will be strong demand for devices, but supply limitations could ‘limit FQ1 upside’.  However, report says “supply has improved moderately over the past week”, which is a healthy sign for the coming quarters and “reiterate our Outperform rating and $750 target price”.

Apple Inc. (AAPL) Q4 Preview: iPhone 5 Supply Biggest Question

The research report from Baird expects Apple Inc. (NASDAQ:AAPL) to ship around 24.4 million iPhone devices in the fourth quarter, including 6-8 million iPhone 5, and for the first quarter of 2013 shipments are expected to be 47.4 million units.  However, the main deteriorating factor could be to meet the strong demand, which the report assumes to be the “biggest risk in our judgment”. Basing the supply concerns on store visits and online checks, the report expects a 3 to 4 week waiting period, “iPhone 5 supply has been very constrained, though it appears to have improved a bit over the past week. Notably, Apple’s website and many carrier stores still cite a 3-4 week waiting period”.  Store visits and online checks have also confirmed strong demand, with “Verizon noted in its results that supply limited its iPhone 5 sales to 651,000.”

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On iPads, the report expects Apple Inc. (NASDAQ:AAPL) to ship around 18.4 million devices in the fourth quarter, and 23.9 million in the first quarter next year, with a possible upward revision to the first quarter estimate with the introduction of a smaller iPad.  The iPhone maker will be unveiling Pad Mini tomorrow, and the report believes “initial fiscal Q1 contribution could be limited, longer term we believe that this product could extend the reach of iOS and the tablet market generally”.

Baird has talked to various investors, basing on which it has come up with a few of their concerns relating to Apple Inc., like perceived slowing iPhone innovation, the lack of strong developing market strategy for iPhone and current iPhone supply constraints. The most commonly cited concern relates to ‘lost of innovation edge’, mainly with respect to iPhone, though the company’s long-term success depends on its ability to innovate rather than merely making incremental updates to a successful product line, report believes “that software and the broader Apple Inc. (NASDAQ:AAPL) content ecosystem are the primary reason to buy an iPhone, and those remain mostly unrivaled today”.  Investors were also concerned about “inability to effectively target many developing markets based on the high iPhone price points”.  On this report believes, Apple Inc. (NASDAQ:AAPL) will have to consider offering “a wider range of iPhone options, similar to its iPod approach”.


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