Tuesday, January 15, 2013

Analysts ignore iPhone 5 component cuts, point to improved yields

Apple stock continued to drop on Tuesday, Jan. 15, as investors continued to react to reports that the company had severely cut its January component orders. While investors seem to be fleeing it may, in fact, be a good time to buy: Some analysts are pointing to improved yields rather than lackluster demand as the reason for the cuts in orders.

On Monday, after the Wall Street Journal Report, J.P. Morgan analyst Mark Moskowitz, an analyst at J.P. Morgan, on Monday called the iPhone 5 demand rumors "more noise" that will fuel an investor overreaction (which it has). Moskowitz went on to say that the "order cuts are a direct result of manufacturing yields improving following the fast-and-furious product roll-outs of the iPhone 5 as well as new iPads and Macs."

Sterne Agee analyst Shaw Wu agreed, writing in a Tuesday research note that Apple's reported cuts to component orders, while indeed real, have nothing to do with weak demand. Instead, he said, component orders are lower because Apple's suppliers are achieving "much improved yields meaning lower component builds and supplier shifts."

Wu added, "As far as we can tell, iPhone 5 demand remains robust."

In terms of yields, in layman's terms, they are saying that the percentage of usable components Apple is receiving from its supply chain has increased. Less wastage means less components that Apple has to order.

Baird analyst William Power even said that he was "actually raising our calendar fourth quarter iPhone forecast slightly." He added that "most [iPhone 5] demand indicators remain favorable."

Despite the reassurances, though, investors continued to worry. Apple stock closed down on Tuesday, Jan. 15, at $485.92, down over $15.

Apple isn't the only company being affected by this news. On Tuesday, Macquarie Equities Research’s Daniel Kim cut his rating on LG Display from outperform to neutral, based on Apple's cuts.

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