Apple stocks slipped this morning after an analyst indicated that Apple could be slashing its fourth-quarter iPad orders. According to Bloomberg News, which cited a report from JPMorgan, Apple has trimmed its parts orders by as much as 25 percent. JP Morgan didn't name specific supplies, although Bloomberg noted that "for a vendor such as Hon Hai, the cut could mean a drop to 13 million units in the fourth quarter from 17 million units in the third quarter."
If the report is correct, it may indicate that Apple is facing weakening demand for the iPad in some markets. "It’s back to reality," Wanli Wang, a Taipei-based industry analyst at RBS Asia Ltd., told Bloomberg today. "Now it seems even for Apple, due to the market situation, we need to be conservative."
Apple, it's worth noting, has not yet confirmed that it will trim orders.
We believe chatter regarding iPad production cuts are misleading – we have seen pull-ins, not cuts. We have noted recent comments by competitors discussing iPad production cuts for 4Q. Our recently published AAPL supply-chain checks noted a sequential decline in 4Q iPad builds from 17 mln-19 mln units in 3Q to 11 mln-13 mln units in 4Q. However, 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. We believe AAPL has attempted to accelerate production in 3Q to ensure product availability for the holidays.
Either way, it is "back to reality" for Apple in at least one sense: the mostly-uncontested champion of the tablet war looks like it will finally have some real competition. According to a slew of analysts, Amazon is preparing to release a tablet computer, probably branded with the Kindle moniker, at a major press event in New York. The Amazon tablet, the current thinking goes, will ship with a 7-inch frame and a capacitive touch screen.
"Amazon’s willingness to sell hardware at a loss combined with the strength of its brand, content, cloud infrastructure, and commerce assets makes it the only credible iPad competitor in the market," a Rottman Epps analyst wrote last week. "If Amazon launches a tablet at a sub-$300 price point — assuming it has enough supply to meet demand — we see Amazon selling 3 [to] 5 million tablets in Q4 alone."
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