A new report from JPMorgan Chase & Co. states that Apple is cutting down its iPad orders for the fourth quarter by 25%, marking the first time Apple has apparently instituted such a drastic decrease in production.
As expected, news of the production slowdown briefly affected Apple’s share price as fear about future iPad sales permeated through the blogosphere and Wall St.
For the 4th quarter, a 25% reduction in iPad production would likely result in shipments dropping from 17 million units to 13 million units.
Reduced orders from Apple to iPad suppliers could reflect both weakening demand in Europe due to economic conditions there as well as a strategy by Apple, the world’s biggest company by market value, to operate with reduced inventory, Wanli Wang, a Taipei-based industry analyst at RBS Asia Ltd., said today.
“It’s back to reality,” Wang said. “Now it seems even for Apple, due to the market situation, we need to be conservative.”
So is the economy finally having an affect on Apple, a company that often times seems impervious to surrounding market dynamics?
Not so fast.
First, there has been no confirmation of a production reduction from iPad component suppliers.
Further, there may be no reason to worry even if the 25% estimate is accurate.
Piper Jaffray analyst Gene Munster, for example, chimed in:
We also note that previous calls based on sell-in or supply chain data have, for the most part, proven to have very little correlation with Apple’s results vs. consensus dating back to early iPod shipments (2003). We believe Apple purposely maintains enough suppliers and manufacturing partners to make any one supply-side data point inconclusive.
And Susquehanna analyst Chris Caso writes that Apple’s apparent pull-back of 4Q iPad builds may be the result of Apple increasing its 3Q production numbers to ensure a sufficient supply ahead of the profitable holiday shopping season. In other words, Apple’s yearly iPad production numbers are effectively the same, there’s simply been an adjustment in production weighted towards the third quarter at the expense of the fourth.
And finally, some are speculating that the cut in iPad production may be the result of Apple employing a new Foxconn factory in Brazil to handle some of its iPad orders.
All in all, there’s no reason to fret, and whadya know, Apple shares have rebounded to about where they started earlier this morning.