|Apple: Fretting Over iPad Demand, Analyst Advises Caution|
In a rare cautious research note from the Street on Apple, Wedge Partners analyst Brian Blair this morning advised investors that it may be time to move to the sidelines with the stock getting close to $620 a share.
“We’re concerned iPad sales may not be as strong as expectations, and we believe March could disappoint ,” and that full year iPad expectations may be pulled down as a result.
“The opening weekend number of 3 million was significant, and of course spoke mostly to pre-orders and to strong weekend sales from Apple’s biggest fans, but in looking at the overall demand picture, there doesn’t appear to be as much of a frenzy as we expected over the new iPad,” he writes. “We can walk into any Apple store and get one today, easily, and that may be a problem, given rising expectations. If existing units in the channel take longer than expected to be digested by consumers, then manufacturing will be pulled back in the June quarter, and estimates for the full year will also be pulled down.”
Blair writes that he had expected the company to sell 9-10 million units in the March quarter, but that some estimates have run as high as 12-13 million units. He has been forecasting 56-60 million units for calendar 2012, and had thought that they could top 60 million units. But Blair says he now thinks the full year number could be at the bottom end of his forecast range, or maybe lower.
“In short, the new iPad is available and it shouldn’t be,” he writes. “We’ve seen occasional sellouts of a few models (the white AT&T 4G 32GB for example, hasn’t always been available), but for the most part since launch day, we’ve been able to walk into any Apple store and get one. We’ve also called a number of stores around the country and found easy availability. Online, the orders quickly shot to a 2 to 3-week shipping delay. They are now down to a 1- 2 week delay and our concern is demand may be waning somewhat after 2 weeks. Either way, there seems to be a disconnect between in-store and on-line availability of the new iPad.”
Blair notes that this is in contrast to the iPad 2, which was harder to get.
“Shortly after its launch, Apple was releasing a limited quantity of the iPad 2 at their stores each morning, to long lines of eager buyers, and whatever stock was on hand was selling out every single day for weeks,” he recalls. “There were even websites that popped up that told consumers what stores had them in stock last year. This isn’t the case this time around.”
So what’s the problem?
“It could be because the form factor of the new iPad is the same as the iPad 2, so Apple has been able to manufacture large quantities of the new iPad at an accelerated rate relative to last year’s launch, because key parts of the manufacturing process are unchanged (think 3G to 3GS and 4 to 4S),” he writes. “It could also be because consumers are largely placing orders online, and thus in-store availability is better simply because people aren’t buying it in-store. Another idea is that much of the world isn’t on 4G/LTE yet so the 3G iPad 2 is sufficient. Some reviews suggest the new iPad is ‘not different’ enough. We think the screen is a huge technology leap, but what matters is end demand.”
Blair concludes that with the stock up 63% year to date through Wednesday, “it’s prudent to take the sidelines at these levels until the company reports earnings.”
“We see a potential disconnect, between the rising price targets/unit expectations and the broad availability of the new iPad, and pieces of evidence that suggest a potential for waning demand in the U.S. The stock may be priced for perfection at current levels, but we feel we are seeing signs of some scratches on the glass, which is reason enough to step aside for now.”
AAPL is down $6.90, or 1.1%, to $610.72.