Apple Rumors: Mac Upgrades and iPhone Production Drop

by: Seth Gilbert November 04, 2008 | about stocks: AAPL    

Seth Gilbert

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Fresh off recent upgrades to Macbooks last month and with no iTunes chatter to replicate Harmonix’s Beatles’ conquest, the Applevine (aka Apple (AAPL) rumors and speculation) surprisingly came to life to start this week with a couple new speculative suggestions.

On the Mac front: Apple-watching website MacNN is reporting their sources say upgrades to the Mac Mini and iMac computers could be announced on November 10th.  

Given the timing would create an opportunity to capitalize on holiday sales, the rumor falls into the category of plausible but clouding the prospect of its accuracy: no product details leaked and MacNN is only citing sources as “anonymous.” Rumors that turn out to be accurate (or reasonably so) more often draw from “sources familiar” or equivalent and have at least a taste of factual detail. This one doesn’t. The general expectation is that Apple won’t make any major new product announcements before their January Macworld event. A November 10th newsflash could happen but it's not the safe bet.

The second Apple rumor to start this week was a speculative report from  an FBR Capital Markets analyst saying Apple’s iPhone production could drop off as much as 40% sequentially during this quarter.

“Previous checks indicated that iPhone production would fall about 10 percent sequentially in calendar 4Q, (but) our new checks indicate that iPhone production could fall more than 40 percent sequentially in 4Q,” the firm’s research note says.

There’s no question consumer spending is down, apparently falling more heavily since the end of Apple’s last fiscal quarter ended September 30th. But a 40% production pullback?

Is demand for the iPhone slowing to such an extent that Apple can stay ahead of it with the combination of existing inventory and a 40% decrease in production? 

Ultimately, there’s not enough public information on how the forecast was assembled to invalidate (or validate) its projection so it falls squarely into the category of rumor. Even so, it’s hard to believe. 

Apple finished the last quarter with sales of 6.9m iPhones. They also had (according to statements made in the earnings conference call) about 2m iPhones in channel inventory around the globe, the equivalent of somewhere between four and six weeks’ worth. That’s not excessive inventory. In fact, it appears near Apple’s target range.

Calling the number further into question, analysts have generally struggled to successfully predict iPhone sales so far. As profiled on Fortune’s website, the leading analysts covering Apple significantly underestimated iPhone shipments in the last quarter, and those are analysts that focus explicitly on Apple. FBR‘s analyst Craig Berger isn’t even one of them. His niche is chips. Berger analyzes and discloses on product production (as opposed to product sales/shipment) because he’s looking at how Apple manufacturing choices affect semiconductor suppliers. 

Being out of his realm doesn’t mean he’s wrong but it does raise doubts. Also raising doubts is the analyst’s track record. He’s speculated on Apple in the past, and more than once, he’s widely missed the mark. This could well be another off-target prediction.

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This article has 6 comments:

  •  
    Nov 04 09:32 AM
    video games will be the Apple killer App for XMas, via iPhone, ipod, touch. parents can get their kid a phone and video game player in one.
    Reply | Link to Comment
  •  
    Nov 04 10:18 AM
    I call bullshit on this. We hear this crap time and time again when Apple is in the middle of a product transition or new product introductions, and the Street starts as screaming about production cuts and falling sales.

    Later, as with iPods, Macs, and iPhones, it turns out they were simply ramping down one model in order to raise production of another (in the case of the 4GB iPhone being cut - remember the call that iPhone production has been slashed by 50%?). This could be more of the same: the 8GB version being cut in preparation of a 16GB/32GB line-up or even a new model iPhone to expand the product line.

    I simply do not believe that iPhone sales are falling by 40%.... that's just bollocks, and typical narrow-minded analyst group-think, even in the face of EVERY similar production cutback in iPods and iPhones actually being to do with new models being introduced, or lower-spec'd models being cut out of the line because they weren't selling.

    FBR have this all wrong and are stupidly not accounting for this, simply instead calling for plummeting sales and production cuts of 40%. Dumb dumb dumb.
    Reply | Link to Comment
  •  
    Nov 04 10:21 AM
    There could be a 40% cut, but only if Apple had ramped up production (temporarily) FAR more than anyone had thought. It would not be the first time an analyst reported on "bad news" that was only bad in the context of omitting the "good". As usually, we should all ignore the analysts when they chime in, and do our own research, and reach our own conclusions. Only then will we buy before the bull runs and sell before the pullbacks.
    Reply | Link to Comment
  •  
    Nov 04 10:51 AM
    Apple doesn't ramp up inventory, it would show up in its financials. The FBR analyst is a semiconductor analyst, and has a poor track record of making these calls. Read the Fortune Mag blog of Elmer-Dewitt, or Andy Zaky's report, here on SA.
    Reply | Link to Comment
  •  
    Nov 04 01:25 PM
    Maybe there just pulling back production in anticipation of decreased consumer spending. Although 40% sounds like an exaggeration from "sources." Either way I have no doubt Apple will make it out strong through the holiday season. Sentiment has been becoming stronger for AAPL (www.predictwallstreet....) and the price shot up this morning. I'm still bullish on APPL.
    Reply | Link to Comment
  •  
    Nov 04 04:39 PM
    I'm not so sure about the 40% production cut either. I was in a local Apple store in the Research Triangle area in Raleigh, NC the weekend before Halloween. It was as busy as ever with plenty of interest in the 3g iphone. The store was a mob scene and it was difficult to get some time to talk to one of the reps. Given the huge upside surprise this past quarter, I'd be surprised if sales were not strong this quarter.

    Although overall Holiday sales will likely be off this year, it will still be an iphone Christmas.

    We featured Apple in our newsletter this past weekend as a great covered call trade over the next year or so. With 25 billion in cash, they are well positioned to weather this economic downturn. About as well positioned as any other tech company....

    Brian C Neall
    Founder - Tradetobefree.com




    On Nov 04 01:25 PM kris23 wrote:

    > Maybe there just pulling back production in anticipation of decreased
    > consumer spending. Although 40% sounds like an exaggeration from
    > "sources." Either way I have no doubt Apple will make it out strong
    > through the holiday season. Sentiment has been becoming stronger
    > for AAPL (www.predictwallstreet....)
    > and the price shot up this morning. I'm still bullish on APPL.
    Reply | Link to Comment
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