- Expectations were high for the iPhone 5 launch and if Apple had had the devices on hand, it probably would have met them.
- Hence I believe that the most important thing to consider going forward is that demand for the device is running way ahead of supply and that is likely to result in a snap-back in sentiment.
- The problem was twofold:
- First, the supply chain was very slow to ramp up to full production over the summer meaning that it simply does not have the capacity to ship enough components to allow Apple to ship more than 50-60m iPhone 5 units during Q3 and Q4.
- This was due to yield issues with the screen which now appear to have been solved.
- Consensus was around 70m units a month or so ago but this has come way back to something more around 55-60m units.
- Second, the issue around the scratching and nicking of the devices during manufacture at Foxconn is resulting in tighter quality controls and consequently lower yields. Hence, fewer devices are going out of the door which has not been helped by the labour disputes.
- Again this will but a brake on unit shipments but critically not demand.
- The weakness that was seen in iPhone 4S shipments earlier in the year is testament to the fact that Apple fans are prepared to wait for a product to become available and do not seriously consider competitor alternatives.
- Furthermore the glitches with Apple Maps and the camera, while real, also do not appear to have hampered demand nor have they driven users into the arms of Samsung.
- 75% of the Apple Stores appear to be out of stock and the online wait time is 3-4 weeks.
- Hence, I think it very likely that the devices will be shipped just perhaps a bit later than expected.
- This of course results in the big buyers of the stock having to trim their estimates which clouds sentiment and makes the market nervous.
- A lot of froth has come off Apple’s valuation as the stock has dropped around 10% in recent sessions.
- Underneath there remains a power house of a company with $120 per share in cash, 14x 2012 PER, and a series of devices that remain unparalleled in their popularity and profitability.
- There should be a new launch next week (see Tablets – Terror at the bottom, Monday 8th October). This device has the scope to cause the fledgling Amazon Android-powered user experience some real problems.
- Hence, I think that robust demand for iPhone 5 and the new market segment that Apple will open up next week will begin to comfort those nervous investors out there that it will be all right on the night.
- I am inclined to buy Apple here looking for a 10% rally back to recent highs.
- On a 1 to 2 year view, I think that Samsung has more space to expand earnings and a cheaper overall valuation but while the IPR issues continue to plague the company, there is scope for the stock to wobble.
Qualcomm – Confident Outin ...
20 November 2024