Macro Headwinds Could Reduce iPad Growth Expectations
According to a report from Bloomberg quoting JPMorgan (NYSE:JPM), Apple (NASDAQ:AAPL) could be seeing lower demand for the iPad 2 prompting the company to slash orders to supply chain vendors by 25%. [1] While a series of analysts rushed to dismiss these implications that suppliers were seeing weaker demand including JPMorgan’s analyst for Apple, we acknowledge that slowing global macro conditions could have forced Apple to make such a move. We also believe that although the iPad continues to enjoy the dominance in the tablet market with players Research in Motion (NASDAQ:RIMM) and Motorola Mobility (NYSE:MMI) struggling in tablets, going forward Apple could face increasing competition from Amazon (NASDAQ:AMZN), which could introduce a tablet later this week.
This report caused some concerns with investors and Apple’s stock declined slightly yesterday while the Nasdaq index increased by more than 1%. The iPad accounts for around 12% of our $510 price estimate for Apple stock, which is about 25% above market price.
Could iPad Shipments Slow as Competition Rises
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As shown in the above chart, we are already factoring in a modest slowdown in our quarterly estimate of iPad shipments. We estimate that Apple will be able to ship around 10 million iPads in this quarter and 13 million in the next quarter helped by the holiday season when consumer spending is at its peak. We are taking a more conservative stance than most of the other brokerage firms on iPad estimates as the global economy limps along.
Amazon could come out with a much cheaper version of tablet at around $250 compared to $500 for the cheapest version of iPad. In our earlier note titled Amazon Can Afford Losses on Tablets due to E-Commerce Opportunity, we discussed that Amazon is in a better position to challenge Apple as it could easily cover up the losses on its tablet hardware by selling extensive range of eBooks and other content-based applications.
See our complete analysis for Apple stock here
Notes:- Apple Trims Orders for iPad Parts, Bloomberg quoting JP Morgan as the source, September 26th, 2011 [↩]