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JPMorgan Differs With JPMorgan on Apple IPad Order Research

JPMorgan Differs With JPMorgan on Apple IPad
Apple fell $1.13, or 0.3 percent, to $403.17 yesterday in Nasdaq Stock Market trading after earlier declining as much as 3.2 percent. Photographer: Jin Lee/Bloomberg

JPMorgan Chase & Co. analyst Mark Moskowitz said research from his colleagues in Asia about a cut in Apple Inc. iPad orders doesn’t represent the views of the securities firm’s U.S. team.

“Apple is fine,” Moskowitz wrote.

Apple is cutting orders to vendors in the supply chain for its iPad tablet computer, a move that may mean slower sales for companies including Hon Hai Precision Industry Co., according to the earlier report by Hong Kong-based JPMorgan analyst Gokul Hariharan.

Analysts at other firms also issued research aimed at quelling speculation that demand for iPads had diminished -- a concern that dragged down Apple’s stock as much as 3.2 percent in Nasdaq Stock Market trading yesterday. Chris Caso, an analyst at Susquehanna International Group, said the resulting “chatter” was “misleading” and Gene Munster, at Piper Jaffray Cos., said changes in orders may be the result of Apple moving some iPad manufacturing out of Asia to Brazil.

The earlier report “has the equity markets worried about Apple,” Moskowitz wrote yesterday. “Mr. Hariharan’s report focuses on how Hon Hai could be impacted by potential iPad sell-in order cuts. This alert is not the view of the U.S. IT Hardware team.”

Projection Maintained

Moskowitz, based in San Francisco, has rated Apple “overweight” for about three years, during which time the stock has quadrupled. Hariharan has covered Hon Hai for at least five years, according to Bloomberg data.

Moskowitz maintained his projection that Apple will sell 10.9 million to 12 million iPads in the fiscal fourth quarter.

Apple fell $3.91 to $399.26 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has climbed 24 percent this year.

The later note may have been prompted by complaints from Apple or large shareholders, said Bruce Foerster, president of South Beach Capital Markets in Miami.

“If nothing else this should be troublesome and at the end of the day you have to come down on the side of independent research,” said Foerster, a former managing director at securities firms including Lehman Brothers Holdings Inc. “That has to trump all, every time. Otherwise what are you selling?”

Orders Cut

Moskowitz and Hariharan declined to comment beyond their respective reports. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment. Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately respond to a call and e-mail for comment after regular business hours.

Edmund Ding, a spokesman for Hon Hai, didn’t answer calls to his Taiwan and China mobile phones made today.

Hariharan’s report, dated Sept. 25, said multiple supply-chain vendors indicated a 25 percent reduction in so-called sell-in orders in the past two weeks, the first such cut that analysts at JPMorgan’s Hong Kong-based electronic manufacturing services team said they have seen. Sell-in orders are those made by a company -- in this case, Apple -- to a supplier.

“We disagree with any talk of a shipment slowdown,” analysts at Barclays Capital wrote in a report. “The numbers being circulated Monday might be related to components and not to actual iPad 2 shipments, in our view. Components checks (are) not a good proxy for actual iPad product shipments.”

“Accelerate Production”

Talk of reduced Apple orders to suppliers may be coming from “pull-ins, not cuts,” as production was moved up to the third quarter from the fourth quarter, Susquehanna’s Caso wrote.

Caso said he does project a decline to 11 million to 13 million iPads built in the fourth quarter, from 17 million to 19 million in the third quarter.

“The 4Q sequential decline was accompanied by an increase in 3Q builds, leading us to conclude that production was likely pulled-in from 4Q to 3Q,” Caso wrote. Apple “has attempted to accelerate production in 3Q to ensure product availability for the holidays.”

Any current production cuts may also be “due to much improved capacity and Apple actively managing its inventory in front of what is likely an iPad refresh in the March quarter,” said Shaw Wu, an analyst at Sterne Agee in San Francisco, in a research report today.

“The iPad 2 started shipping in March 2011, making the product likely due for an update near its one-year anniversary,” said Wu, who recommends buying shares and has a target price of $500.

IPad Shipments

Wu maintained his projection of 27 million iPad shipments in the second half of the calendar year, with 12 million units in the current quarter and 15 million units for the period ending in December.

Craig Berger, with FBR Capital Markets in New York, wrote a report saying his view was “largely consistent” with the research from JPMorgan’s Asia team on cuts to orders from Apple to iPad suppliers. The cut to fourth-quarter iPad production may reflect Apple being more cautious on overall global demand given recent market turbulence, and discounting some iPad growth in China, he wrote.

“For the iPad, 3Q11 builds were cut by 5%, while 4Q11 production estimates were cut by 24%, an incremental negative for Apple related supply chain participants,” Berger wrote.

IPad builds were cut by 24 percent in the fourth quarter from 17 million to 13 million, as iPad 2 Wi-Fi builds were revised lower, and as ‘iPad 2 Plus’ production was removed from the forecast due to “display manufacturing challenges,” Berger wrote.

Apple’s iPad may account for 73 percent of tablet sales this year, according to research firm Gartner Inc. Products that run on Google Inc.’s Android operating system, including Samsung Electronics Co.’s Galaxy tablets, will probably have about 17 percent of the market, Gartner said on Sept. 22. Inc. may release a product later this year that could become the No. 2 tablet in the market behind the iPad, Moskowitz wrote in a report earlier this month.

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