Apple has just launched the second generation of its highly popular tablet. The company can’t stop selling tablets and smart-phones like hot-cakes. Yet, this has been a disastrous few days for the company. JMP Securities downgraded Apple from market outperform to market perform. That was enough to cost Apple a ton of value in shares.
Apparently, Apple’s manufacturing partner Hon Hai is not growing as fast as analysts expected. That could mean Apple’s sales could start to slow down as well.
We are reducing estimates and downgrading Apple from Market Outperform to Market Perform to reflect risk associated with the notable deceleration in its primary manufacturing partner Hon Hai (Foxconn) that was emerging even prior to the amplified uncertainty created by developments in Japan. Hon Hai sales growth decelerated from 84% y/y in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the >70% y/y sales growth consensus is looking for in the March quarter and >50% in June. Consequently we are trimming our F2Q11 revenues estimates from $23B to $22B (Street $23.1B; guidance $22B) and GAAP EPS from $5.49 to $5.10 (Street $5.27, guidance $4.90) and CY12 GAAP EPS estimate from $27.50 to $27.00 (Street $27.63).
Apple is a victim of its own success here. When the company is not smashing its previous records, it alerts analysts. Maybe Apple has been growing and gaining value too fast.
We don’t know the source of the Hon Hai deceleration, but iPhone sales appear to be tracking simply in line for the March quarter, there has been widespread weakness in computing as tablet demand has grown, and there is product transition risk around the iPad 2.
Apple has many manufacturing partners in Asia. The recent tragedies in Japan have not helped the company’s cause. Some analysts have argued that part costs could go up as a result of the recent earthquake. The recent drop of Apple’s shares could encourage more investors to get on-board. Apple is still destined to break records and reach new heights as long as it does not get too comfortable with its position in the tablet and smart-phone markets.
A major disruption in Apple’s supply chain can lead to iPad shortages. People are already selling iPad 2s for over $1000 on eBay and other sites. If you need an iPad 2, now is probably a good time to order.
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