Deceleration in Foxconn manufacturing seen as a concern for Apple

Posted:
in General Discussion edited January 2014
A "notable" slowdown in manufacturing at Apple's overseas partner Foxconn has been viewed as a potential issue for the iPad maker, and may result in less availability of products.



JMP Securities downgraded its outlook on AAPL stock on Wednesday, with the change prompted by a deceleration in manufacturing at Foxconn. Analyst Alex Gauna said the change from "Market Outperform" to "Market Perform" is not a result of concerns with Apple itself, but rather the ability of Foxconn to produce Apple products.



"(Foxconn) growth decelerated from 84% (year over year) in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the (more than) 70% (year over year) sales growth consensus is looking for in the March quarter, and (greater than) 50% in June," the analysis reads.



The firm has accordingly cut its estimates for the second fiscal quarter of 2011 to $22 billion in revenue, down from $23 billion. Consensus on Wall Street is for Apple to report revenue of $23.1 billion, while Apple's guidance is for $22 billion.



"We don't know the source of the (Foxconn) deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2," Gauna wrote.







The downgrade is also based on what JMP Securities views as "complacency" on the part of investors over AAPL stock. Gauna noted that Apple has consistently delivered with five years worth of upside surprises in its quarterly earnings, averaging 23 percent.



"Recent Street commentary appears biased towards the momentum continuing, with most numbers moving higher around the CDMA iPhone and iPad 2 launches where clear demand trends have yet to emerge," Gauna wrote.



The note was issued as Apple continues to experience crushing demand for its new iPad 2 in the U.S., which was launched last Friday. Apple has been unable to keep up with consumer interest, and new online orders are now advertised to ship in 4 to 5 weeks.



Also cited in Gauna's note is the recent earthquake disaster in Japan, which forced Apple to delay the launch of the iPad 2 in that country. It was noted that Apple derives 6 percent of its sales from Japan, and key components such as hard disk drives and NAND flash are obtained from the nation.
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Comments

  • Reply 1 of 46
    wigginwiggin Posts: 2,258member
    "The sky is falling!" - Chicken Little
  • Reply 2 of 46
    I don't don't know of a formula for "decelerated" when the Apple estimate looks like a barber shop pole.
  • Reply 3 of 46
    While this analysis maybe an exaggeration, Apple maybe better served if they had more manufacturing companies in the mix. Why put all your eggs in one basket?
  • Reply 4 of 46
    According to Wikipedia, an incomplete list of Foxconn clients include:



    Apple Inc.

    Acer

    Amazon

    Asus

    Intel

    Cisco

    Hewlett-Packard

    Dell

    Nintendo

    Nokia

    Microsoft

    Sony

    Sony Ericsson

    Samsung

    Vizio



    So of course its logical to conclude that if Foxconn is having problems you should downgrade APPL
  • Reply 5 of 46
    walshbjwalshbj Posts: 864member
    Sold half my aapl position on this news.
  • Reply 6 of 46
    This guy is a crock .. you must analyze what someone says and see if it makes sense. This does not.



    Did the "genius" consider that Apple was transitioning to the Verizon CDMA phone launch???? huh huh huh? or IPAD 2 launch huh huh huh? Think sales suck of the ipad 2 Alex???? where is your head? you write sci fi? What a joker - this downgrade is idiotic.



    Of course if you are transitioning into 2 unbelievable launches in short time (not to mention lap top/new) ... you need to slower the sprint for the hand off. huge transition - verizon iphone, white iphone, ipad 2 and lap top.



    You would naturally expect fox. to slow the increased production in December January.. ding dong .... look at the launch date.



    As far as Japan - if anything Alex this horrible incident in Japan assists Apple .. with 1 month back-log in ipad 2 and general backlog as demand outstrips supply. Allows Apple to have enough supply in ipad 2 to have release to ROW.



    There is question about demand this current day in Tokyo..... have read that demand may be higher because naturally residents want to be informed - and stores very busy. Even if temporary demand reduction, that simply jacks up demand later when the nuclear thing calms itself. Huge huge huge demand. Prolific - money will be pouring /spending as Japan re-builds.



    This guy should be canned ........ maybe he can get a job w/ the Democratic party for Wisconsin to create a spin how people love the legislators leaving on vacation on their dime





    Quote:
    Originally Posted by AppleInsider View Post


    A "notable" slowdown in manufacturing at Apple's overseas partner Foxconn has been viewed as a potential issue for the iPad maker, and may result in less availability of products.



    JMP Securities downgraded its outlook on AAPL stock on Wednesday, with the change prompted by a deceleration in manufacturing at Foxconn. Analyst Alex Gauna said the change from "Market Outperform" to "Market Perform" is not a result of concerns with Apple itself, but rather the ability of Foxconn to produce Apple products.



    "(Foxconn) growth decelerated from 84% (year over year) in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the (more than) 70% (year over year) sales growth consensus is looking for in the March quarter, and (greater than) 50% in June," the analysis reads.



    The firm has accordingly cut its estimates for the second fiscal quarter of 2011 to $22 billion in revenue, down from $23 billion. Consensus on Wall Street is for Apple to report revenue of $23.1 billion, while Apple's guidance is for $22 billion.



    "We don't know the source of the (Foxconn) deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2," Gauna wrote.







    The downgrade is also based on what JMP Securities views as "complacency" on the part of investors over AAPL stock. Gauna noted that Apple has consistently delivered with five years worth of upside surprises in its quarterly earnings, averaging 23 percent.



    "Recent Street commentary appears biased towards the momentum continuing, with most numbers moving higher around the CDMA iPhone and iPad 2 launches where clear demand trends have yet to emerge," Gauna wrote.



    The note was issued as Apple continues to experience crushing demand for its new iPad 2 in the U.S., which was launched last Friday. Apple has been unable to keep up with consumer interest, and new online orders are now advertised to ship in 4 to 5 weeks.



    Also cited in Gauna's note is the recent earthquake disaster in Japan, which forced Apple to delay the launch of the iPad 2 in that country. It was noted that Apple derives 6 percent of its sales from Japan, and key components such as hard disk drives and NAND flash are obtained from the nation.



  • Reply 7 of 46
    Analysts had better look for reasons to downgrade this stock because it's surely not going to reach many of those high numbers they've been pushing as target prices and it's easy to see that investors are avoiding purchasing Apple stock and will continue to do so. I can't imagine any individual investors will be buying Apple at its current price so no matter how many iPads Apple sells, Apple's share price will stay at this level or likely drop. This has nothing to do with Apple as a company or its products, it seems to be the flakiness of the economy or hedge-fund strategy that will continue to hold down Apple's share price. A $400+ share price is likely an impossible dream. I'm an Apple shareholder so it has nothing to do with Apple hate but this is honestly how I see it and I hope I'm dead wrong.



    I'm sure analysts are coming to this conclusion and will have to find reasons to downgrade Apple to cover their overzealous numbers. This Foxconn slowdown issue does seem to be a bit of a stretch to downgrade Apple on so I suspect there are other reasons for the downgrade.
  • Reply 8 of 46
    Quote:
    Originally Posted by Constable Odo View Post


    Analysts had better look for reasons to downgrade this stock because it's surely not going to reach many of those high numbers they've been pushing as target prices and it's easy to see that investors are avoiding purchasing Apple stock and will continue to do so. I can't imagine any individual investors will be buying Apple at its current price so no matter how many iPads Apple sells, Apple's share price will stay at this level or likely drop. This has nothing to do with Apple as a company or its products, it seems to be the flakiness of the economy or hedge-fund strategy that will continue to hold down Apple's share price. A $400+ share price is likely an impossible dream. I'm an Apple shareholder so it has nothing to do with Apple hate but this is honestly how I see it and I hope I'm dead wrong.



    I'm sure analysts are coming to this conclusion and will have to find reasons to downgrade Apple to cover their overzealous numbers. This Foxconn slowdown issue does seem to be a bit of a stretch to downgrade Apple on so I suspect there are other reasons for the downgrade.



    ...hedge their analysis, especially during instances of catastrophe like the Japan disaster. Hedge and retirement funds have invested heavily in Apple stock since it is outperforming the rest of the tech sector, and therefore highly attractive. It wouldn't necessarily be all that bad in the long term for Apple stock to decline some to allow some additional buy-in by smaller, non-fund related investors - Apple would benefit from a more diversified stockholder population, especially if it would dilute some of the institutional holdings.
  • Reply 9 of 46
    nofeernofeer Posts: 2,422member
    Quote:
    Originally Posted by All Day Breakfast View Post


    According to Wikipedia, an incomplete list of Foxconn clients include:



    Apple Inc.

    Acer

    Amazon

    Asus

    Intel

    Cisco

    Hewlett-Packard

    Dell

    Nintendo

    Nokia

    Microsoft

    Sony

    Sony Ericsson

    Samsung

    Vizio



    So of course its logical to conclude that if Foxconn is having problems you should downgrade APPL





    how about this, the slow down is for all things NON APPLE

    we have already seen decrease in netbooks and non apple laptops since ipad



    also foxconn employs more than most large cities its massive
  • Reply 10 of 46
    Quote:
    Originally Posted by All Day Breakfast View Post


    According to Wikipedia, an incomplete list of Foxconn clients include:



    Microsoft



    So of course its logical to conclude that if Foxconn is having problems you should downgrade APPL



    The slowdown is because the Zune will no longer be manufactured...
  • Reply 11 of 46
    hal 9000hal 9000 Posts: 101member
    Quote:
    Originally Posted by walshbj View Post


    Sold half my aapl position on this news.



    Really?



    Could have told me so I could buy it!!!
  • Reply 12 of 46
    walshbjwalshbj Posts: 864member
    Quote:
    Originally Posted by Hal 9000 View Post


    Really?



    Could have told me so I could buy it!!!



    No, not really. Every time I think about selling a little aapl I end up buying or holding, since 2005 when I got in. Mostly because market share is so low in certain product lines. Tons of room to grow.
  • Reply 13 of 46
    zoetmbzoetmb Posts: 2,326member
    Maybe I'm naive, but this makes no sense to me. What does a slowdown at Foxconn have to do with Apple? It would be one thing if the slowdown was due to a labor shortage or manufacturing defects, but if the slowdown is because of declining business from other companies, it seems to me that this either has no effect on Apple or it could even have a beneficial effect as it increases manufacturing capacity for Apple, which seeems to need it.



    Apple just sold one million iPads in a weekend. Although this isn't brand new technology, it used to take 12 to 36 months to sell one million of anything electronic when first introduced. And the stock is downgraded? I realize that all stocks are down due to Japan and other factors, but I'm waiting for Apple stock to drop a bit more and then I'm buying again.



    Furthermore, because of the damage at many Japanese manufacturing companies, I think it's possible that at least temporarily (where temporary=several years), a lot of additional Japanese manufacturing might move to China and certainly Foxconn would get a piece of that.
  • Reply 14 of 46
    Quote:
    Originally Posted by island hermit View Post


    The slowdown is because the Zune will no longer be manufactured...



    Hilarious!



    But this strikes me as suspicious analysis, or at least it doesn't include good supporting evidence for the conclusion. As has been pointed out already, a slowdown at Foxconn clearly doesn't indicate Apple slowdown. And what's the reason to point to stockholder complacency?



    From a straight EPS * typical multiple perspective it's not a stretch from today to $450 shares. (Estimates for 2011 are close to $19 and 2012 are over $21. Grain of salt.) Past performance is no indicator of future performance. The stock price isn't there today yet because of many valid concerns about technology, about competition, etc, but the risk is also calculated into the price history. IMO, it's a great company on a historic tear. I'm a (very) small investor and am happy about what AAPL has done for me. And I read Andy Zaky's educational articles here at AI.
  • Reply 15 of 46
    That was all a bit muddled as an article or maybe the report.



    Regardless this is or will be the next challenge to Apple growing. Being able to produce enough devices. I'd say it is the problem and has been for 12 months.



    Besides, foxconn has become too important. Every company is giving away the keys. Designs, production techniques... Foxconn could easily become its own CE brand and screw all of them.



    I wrote it earlier, apple, innovate manufacturing.
  • Reply 16 of 46
    A joke of an analysis, really. This guy has no clue about where or why the 'deceleration' is coming from, why it only affects Apple, whether Apple has alternatives, whether this is a short/medium/long-term issue for Foxconn, and throws around clueless, vague terms like 'investor complacency' and 'street commentary' on momentum. Not a whit about company or market fundamentals.



    Investors actually pay for this sort of thing?!



    Let's hope the stock goes down a little more. It'll be a huge buying opportunity. And, let's check back on Mr. Gauna a year from now.
  • Reply 17 of 46
    charlitunacharlituna Posts: 7,190member
    Quote:
    Originally Posted by Granmastak View Post


    While this analysis maybe an exaggeration, Apple maybe better served if they had more manufacturing companies in the mix. Why put all your eggs in one basket?



    This sounds to me more like an attempt to short the stock than anything else.



    Look at the months discussed. Post Holiday. Of course there might be a slow down, there's simply a slow down in buying during that time. Especially when everyone KNOWS that there's a new phone on the horizon, new laptops, new ipad etc. Apple would be idiots if they flooded the channel with old stuff that no one is going to buy. Slow to stop production and folks will have to buy the new stuff when it hits cause there's nothing else. But our analyst dude doesn't talk about stuff like that.



    and yes the whole earthquake etc thing is going to have an impact on deliveries. 'Stupid' Fed Ex and the like think it is more important to deliver aid supplies to those folks without homes and such. I mean how dare they. Don't they know that everyone in the US getting their precious ipad toys on launch weekend is more important. Apparently this analyst sure feels that way.
  • Reply 18 of 46
    thepixeldocthepixeldoc Posts: 2,257member
    Quote:
    Originally Posted by ddawson100 View Post


    Hilarious!



    Well maybe funny, but we'll see down the road if possibly, MSFT is getting a little more focused on what they do: software! (I purposely left out "best", because that's definite Troll-bait



    Quote:

    ....And I read Andy Zaky's educational articles here at AI.



    Yeah.. me too. So where is he to give the rest of "us" some guidance. I don't trust Anal-cysts in the least!
  • Reply 19 of 46
    I was in the IB business and read numerous research reports on daily basis. This guy aren't even sure about the business de-composition of Foxconn business and jump to the conclusion that it must be related to APPLE (guts feel? haha). I think there are funny people from the hedge fund industry who work with each other to create a short sell opportunity (or they are dying to cover their shorts).



    I think it is fair to question AAPLE momentum, but it seems the more legitimate questions are 1. Whether/how the chips industry in Japan will impact the supplies of Apple products, particularly in NAND, or 2. may be this clever guy "just knew" (from god, may be) that Apple is seeing a slow down in its sales or 3. He knows something about Steve Jobs health and we don't. These are legitimate doubts, and if he can find support information on these 3 areas then I think he is serious enough to downgrade Apple.



    Yes, Apple are too heavily/widely held and mkt cap is too big thus market is both expecting a PE compression process or finding an excuse to cut allocation or finding an excuse to increase holdings at lower entry point. But if anyone is making their buy/sell decision based on such a stupid call/report, I will be damned.



    BTW AppleInsider is the best site for Apple, their product review is thorough and their financial/product/business review is at par and sometimes better than those top IBs analysts. Keep up with the good work!
  • Reply 20 of 46
    aaarrrggghaaarrrgggh Posts: 1,562member
    Not to be another "what an idiot," but does the analyst realize that Petagron will see a significant growth share with the CDMA iPhone?! From where I sit, Foxcon's other customers are likely more flat in average than Apple, but Apple's divestiture away from Foxcon suggests that they may be reaching the limits of their exponential growth phase. It is amazing it has lasted this long!



    Oh well, I got a great deal on some May $300 calls because of it.



    Japan I am willing to have more concern on relative to Apple. Not worried about NAND or chip production, but the spirit of panic in 6% of their market is an uncomfortable feeling. I think China can make up for this in the short run, but I wonder how people will respond longer term...
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