No Apple ‘doomsday’ for Christmas – iPhone demand remains high for the holidays

on Tuesday, December 18, 2012

Apple remains resilient despite concerns over recent supply chain cuts

Recent supply chain cuts for the iPhone 4S and the iPhone 5 by Apple (AAPL) have prompted some analysts to seriously question the health of the company in the wake of decreased parts orders in the month of December. Such cuts have caused some to suspect that a massive decline is on the horizon for Apple, speculating that a ‘doomsday’ scenario is imminent for the company. While some would intuit that December should have seen a surge in orders for iPhone parts by Apple due to increased demand for the holidays, Topeka Capital Market’s Brian White contends that “the doomsday scenarios painted over the past week are inaccurate”, adding that "Actually, we are a bit surprised that these cuts didn't occur sooner."

White’s explanation is that some Apple partners are having trouble building enough components for the iPhone 5, (due to yield issues) such that Apple has been forced to make cuts from other suppliers. It may be comforting for Apple investors that those cuts only occurred in the beginning of December, while November and October remained without cuts. This could be indicative of a ramping up of production in anticipation of the holidays, with the new phones being made in the fall to be ready for sale in December, and the cuts taking place in December because the seasonal demand has already been met. Regardless, the signal sent to investors as a result of the supply chain cuts has had a chilling effect on perception of Apple investor confidence, despite most quarterly projections remaining mostly unchanged and Apple stock trading up 1.19%.

The steady sales for the iPhone 5 and iPhone 4S continue to demonstrate resiliency, which should quell any unrest in the wake of the recent supply chain cuts. With over 2 million iPhone 5 units selling in just the first three days of being available, demand for Apple phone products remain high. While the question remains as to why the announcement of the decision to make supply chain cuts would come at such a seemingly untimely juncture, the resiliency and reach of Apple are simply too bolstered by global demand that the announcement of cuts will have only a minor impact at best. Wells Fargo analyst Maynard Um put it eloquently when responding to Apple doomsayers, proclaiming triumphantly that ‘the Mayan apocalypse is not upon us,’ and for potential investors, it seems that it’s not upon the Apple or the iPhone, either.

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