Sterne Agee Seeks to Calm Apple (AAPL) Investors Nerves, Says all is Fine

October 9, 2012 10:49 AM EDT
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With shares of Apple (NASDAQ: AAPL) down over 10% since hitting an all-time high of $705, Sterne Agee analyst Shaw Wu is out trying to calm nerves.

Wu notes recent concerns have centered around supply and demand issues with reports of employee disputes at Foxconn, and minor product complaints including scratches and "purple flare." However, he believes these concerns are overdone and said their latest supply chain checks "have not picked up a drop-off in demand and production appears to be improving with the bottleneck moving from components (like the in-cell touchscreen) to the assembly of the iPhone 5 itself."

Because the iPhone 5 is not easy to build and demand is "overwhelming" this is causing lead times to remain at 3-4 weeks. However, Wu remains comfortable with his forecasts looking for 27 million iPhones in the September quarter and 46.5 million units in the December quarter, although he does see room for upside.

On an iPad mini, Wu said "we are picking up much increased component sourcing activity for what appears to be for a smaller form factor iPad." That said, the analyst said the consensus estimates of 17-18 million iPads for the September quarter may prove high. The firm is at 16.5 million and has seen lower build plans ahead of iPad mini and a likely minor iPad refresh with an 8-pin Lightning connector (from 30-pin). He sees room for upside in the December quarter and is forecasting 22.3 million units versus the consensus at 22-24 million.

The iPad mini will likely be the competition's "worst nightmare," although he said price points will be key. While Apple doesn't need to price an iPad mini at $199 to Google's Nexus 7 and Amazon's Kindle Fire HD, a price point of $299 or $349 makes sense with its entry-level iPod touch starting at $199 and iPad 2 at $399.

The firm reiterated its Buy rating and price target of $840.00

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $638.17 yesterday.

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Now down 2%, 10% from high
Yikes on 2012-10-09 10:57:39
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now in correction mode

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