Apple (AAPL) Lower as Analyst Sees Risk of Sharp Production Cuts for iPhone 6 Plus in Q1

Despite two price target hikes, investors in Apple (NASDAQ: AAPL) are scratching their heads as to why the stock is down 0.76% in pre-open trade after losing 3.25% yesterday. The downside appears related to two cautious analyst notes - one from Deutsche Bank and the other from Pacific Crest.

Deutsche Bank's Taiwain tech analyst Yasuo Nakane sees a risk of sharp production cuts for 5.5" (iPhone 6 Plus) in 1Q 2015.

"The biggest changes in our outlook since late October are for components and production in 1Q 2015, especially regarding weaknesses for 5.5" panels," Nakane said. "We raise our assumption for combined 4.7"+5.5" production of end-use products from 66m to 68m for 4Q 2014 but lower it from 49m to 35-38m (down 44-49% QoQ) for 1Q 2015. Given the current consensus for 5.5" production to stay high in 1Q 2015 while the slowdown is less than usual for iPhone 6 overall, the market may view developments negatively if our assumptions for trends are correct."

He added, "For final demand, there are many uncertainties regarding year-end sales campaigns in Europe and the US and Chinese New Year sales campaigns in Asia and greater China. However, signs of weak product and related component supply after January may be seen in production volumes through 4Q 2014 (or January 2015), suggesting that peak demand will be about at the same time, in line with our forecast. Compared with our pre-launch assumptions, we think 4.7" production will largely match our forecast this year, and we have raised our 5.5" forecast. We think 5.5" demand is stronger than was assumed before the launch. Also, we expect demand to rise as inventory turnover days are protracted with expansion in sales areas. That being said, production adjustments in 1Q 2015 like those seen last year and two years ago would suggest that demand is not as strong as the buzz in the market and the media portray it and that the consensus is overly optimistic. We intend to carefully monitor actual sales trends over year-end and Chinese New year sales campaigns and reassess how production and component demand may change after the new year. In 2014, amid brisk 5S sales, production and shipments declined significantly in Jan-Feb, but production and component demand picked up again from March. We plan to avoid excessive pessimism and optimism and carefully analyze whether production and shipments rise again."

Pacific Crest sees a peak for iPhone growth and said the company is likely pulling demand from future quarters.

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