Second Apple analyst sees "softness" in iPhone demand
Two analysts have issued research notes to clients this week indicating that their checks with supply chain sources suggest forward looking iPhone build orders are experiencing some incremental weakness due to concerns about customer demand.
The first was FBR Capital Markets analyst Craig Berger, who used a report Monday to predict Apple would reduce its production rate of the iPhone 3G by as much as 40% during the current December quarter -- a three-month period where sales generally benefit from seasonality and the the mad holiday rush.
His calls were echoed Wednesday by fellow analyst Maynard Um at UBS Investment Research, who said his own investigation into the iPhone maker's component supply chain suggest build orders for the iPhone 3G may fall from 9 million during the prior quarter to 6.7 million - 7.3 million.
Unlike Berger, the UBS analyst used a portion of his note to explain the "obvious danger in making assumptions from supply chain chatter," or attempting to quantify forward looking iPhone demand by examining changes in Apple's orders for individual iPhone components rather than its precise orders for the fully assembled handsets, which are closely guarded.
For instance, there's often an unknown time lag between component orders and actual production, lower component orders could be the result of healthy component inventories already on hand at Apple's manufacturing facilities, and supply chain order and production plans can change on the drop of a dime.
"That said, recent supply chain cuts have proven accurate (at least directionally)," he wrote. "Hence, we believe recent data points may suggest unit volumes weaker than our current estimate of 5 million [for the December quarter]."
Um added that current build plans for Apple's March quarter, or the quarter immediately following the holiday shopping season, "appear to be low given channel inventory." However, he said he's less inclined to trust the accuracy of his data beyond the December quarter.
In his note to clients, the analyst also issued some comments on iPhone price cuts and Apple's surprisingly favorable selling expenses surrounding the touch-screen handset.
He noted that factors such as iPhone price cuts could result in greater demand elasticity, which would disrupt any build predictions for future quarters that are based on existing channel conditions. In fact, the analyst believes there will be a price cut on the handset in the near future, though he believes "operators may not necessarily pass on the cost-savings given already aggressive subsidies and pricing."
Meanwhile, Um is also keeping an eye on Cupertino-based company's operating expenses, and was surprised to find its "Selling, General & Administrative Expenses" (or SG&A) in line with its peers of approximately $20 per handset.
"We find it surprising that Apple is able to achieve this level of cost discipline at such an early stage in the iPhone lifecycle (RIMM and PALM experienced materially higher SG&A costs early in their product cycles - $25-$40 per handset)," he wrote.
He added that the company's well-established brand likely alleviates some advertising expenses, while only one handset SKU limits training costs of sales associates. However, should Apple look to further penetrate the high-end enterprise market, SG&A would likely rise "due to the 24/7 support requirements that most large enterprises require."
Um maintained his Neutral rating on shares of Apple with a $115 price target.
"Although we continue to believe Apple will be able to grow at a premium to the overall market and increase share gains going forward, we do not believe the company will be immune to the broader economic slowdown, which we believe is reflected in our 11% Mac unit growth expectation," he wrote.
The first was FBR Capital Markets analyst Craig Berger, who used a report Monday to predict Apple would reduce its production rate of the iPhone 3G by as much as 40% during the current December quarter -- a three-month period where sales generally benefit from seasonality and the the mad holiday rush.
His calls were echoed Wednesday by fellow analyst Maynard Um at UBS Investment Research, who said his own investigation into the iPhone maker's component supply chain suggest build orders for the iPhone 3G may fall from 9 million during the prior quarter to 6.7 million - 7.3 million.
Unlike Berger, the UBS analyst used a portion of his note to explain the "obvious danger in making assumptions from supply chain chatter," or attempting to quantify forward looking iPhone demand by examining changes in Apple's orders for individual iPhone components rather than its precise orders for the fully assembled handsets, which are closely guarded.
For instance, there's often an unknown time lag between component orders and actual production, lower component orders could be the result of healthy component inventories already on hand at Apple's manufacturing facilities, and supply chain order and production plans can change on the drop of a dime.
"That said, recent supply chain cuts have proven accurate (at least directionally)," he wrote. "Hence, we believe recent data points may suggest unit volumes weaker than our current estimate of 5 million [for the December quarter]."
Um added that current build plans for Apple's March quarter, or the quarter immediately following the holiday shopping season, "appear to be low given channel inventory." However, he said he's less inclined to trust the accuracy of his data beyond the December quarter.
In his note to clients, the analyst also issued some comments on iPhone price cuts and Apple's surprisingly favorable selling expenses surrounding the touch-screen handset.
He noted that factors such as iPhone price cuts could result in greater demand elasticity, which would disrupt any build predictions for future quarters that are based on existing channel conditions. In fact, the analyst believes there will be a price cut on the handset in the near future, though he believes "operators may not necessarily pass on the cost-savings given already aggressive subsidies and pricing."
Meanwhile, Um is also keeping an eye on Cupertino-based company's operating expenses, and was surprised to find its "Selling, General & Administrative Expenses" (or SG&A) in line with its peers of approximately $20 per handset.
"We find it surprising that Apple is able to achieve this level of cost discipline at such an early stage in the iPhone lifecycle (RIMM and PALM experienced materially higher SG&A costs early in their product cycles - $25-$40 per handset)," he wrote.
He added that the company's well-established brand likely alleviates some advertising expenses, while only one handset SKU limits training costs of sales associates. However, should Apple look to further penetrate the high-end enterprise market, SG&A would likely rise "due to the 24/7 support requirements that most large enterprises require."
Um maintained his Neutral rating on shares of Apple with a $115 price target.
"Although we continue to believe Apple will be able to grow at a premium to the overall market and increase share gains going forward, we do not believe the company will be immune to the broader economic slowdown, which we believe is reflected in our 11% Mac unit growth expectation," he wrote.
Comments
Sounds ureasonable at least in US- 3 new major touchscreen phones have/will have been introduced and people will now be even less likely to switch to an inferior network with all the bad publicity 3G/AT&T/iPhone has received.
A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.
It's really easy to forget what a minority the people are who read AppleInsider. I'm a pretty demanding user. But I have no hesitation about giving AT&T a try when my contract is up with Verizon.
How about a cutback to drain current inventory and introduce a 32GB version after the holidays?
Or maybe introduce a new Nano phone on a different network. Other phone makers can sell different models of different networks- can Apple?
Two analysts have issued research notes to clients this week indicating that their checks with supply chain sources suggest forward looking iPhone build orders are experiencing some incremental weakness due to concerns about customer demand.
I wonder how much demand there would be for an iPod Touch 3G?
Would Verizon customers who don't like Vcast but don't want to switch to at&t be interested?
Here is what I am thinking...
$199 32GB iPod Touch 3G with 2 year at&t contract $30/month
$229 8GB iPod Touch
$299 16GB iPod Touch
$399 32GB iPod Touch
A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.
It's really easy to forget what a minority the people are who read AppleInsider. I'm a pretty demanding user. But I have no hesitation about giving AT&T a try when my contract is up with Verizon.
I'm curuious- have you ever talked to anyone who's using an iPhone? At least here in NYC - the calls frequently are either hard to understand or drop. Will you be checking out the Blackberry Storm with Verizon first before you make your decision?
A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.
I agree with what you're saying but that applied 6 months ago. I just think people will be less likely to switch now that there are more touch sreen phone options available . Expect heavy advertising from iPhone touchscreen competitors as well.
Apple really needs to stop adding crappy features and start fixing more bugs, i mean it's been over a year and Safari keeps crashing more and more often with every update, Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right, i love the device but there's a breaking point for everything and am starting to lose patience, it's just too many drop calls, it's like 1 in 2 gets drop
And there you have it. No matter how awesome the phone is, if you constantly get dropped calls then it's useless.
I wonder how much demand there would be for an iPod Touch 3G?
Would Verizon customers who don't like Vcast but don't want to switch to at&t be interested?
Here is what I am thinking...
$199 32GB iPod Touch 3G with 2 year at&t contract $30/month
$229 8GB iPod Touch
$299 16GB iPod Touch
$399 32GB iPod Touch
I finally ordered my iPod Touch last night- was going to get 32GB but decided at last minute to go for 16GB in case either they add 3G or a camera next year and then I will want an upgrade.
AT&T is no worse than Verizon.
Then why is it rated close to the bottom of carriers per Consumer Reports?
Yeah but i still won't go back to a windows mobile device, i just want these damn bugs fixed
Garbage in; garbage out. If the carrier sucks and is causing the dropped calls then bugs or none - it ain't gonna change.
AT&T is no worse than Verizon.
In the midwest AT&T is far better than the others in my experience. Also I rarely have any crashes in Safari or any other of the apps. I rarely even reboot. This is typical of both my 3G and my family's original iphones. The big issue I have is there is no 3G service in most of the midwest (or country for that matter).
Apple really needs to stop adding crappy features and start fixing more bugs, i mean it's been over a year and Safari keeps crashing more and more often with every update, Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right, i love the device but there's a breaking point for everything and am starting to lose patience, it's just too many drop calls, it's like 1 in 2 gets drop
And there you have it. No matter how awesome the phone is, if you constantly get dropped calls then it's useless.
True dat!! It's been over three months now since my iPhone's reception in Queens, NY has gotten bad enough that I use my wife's Razr to make and take important calls.
Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right
I've had my iPhone since February and have never had a dropped call. For that matter I've never heard of anyone I know reporting one either (not to say it hasn't happened)...
Maybe the issue is with network coverage in your area and not the phone itself?
I agree with what you're saying but that applied 6 months ago. I just think people will be less likely to switch now that there are more touch sreen phone options available . Expect heavy advertising from iPhone touchscreen competitors as well.
Well, not to blow sunshine on each other but I wondered the same thing - if the switch phenomena would end quickly - like it was caused by launch glee. My guess is it will slow down, but PLENTY of people will still switch. Lots of people like me are just waiting for their contract to end. 3G has only been out a short while, people are mid-contract.
It's pretty hard to predict this industry with any kind of certainty. Who would have thought the Razr would STILL be doing so well?!
Personally I don't think the other touch screen phones I've held come close. And those phones are fighting an incredible marketing buzz. Just like all the perfectly functional MP3 players that can't put a dent in the iPod share.
I finally ordered my iPod Touch last night- was going to get 32GB but decided at last minute to go for 16GB in case either they add 3G or a camera next year and then I will want an upgrade.
I'm sorry but isn't that the whole point of buying an iPhone - to get the cellular antennae and the camera?
I can see Apple adding a camera to iPod touch, but there isn't a snowball's chance in hell that they will put in a 3G chip.