Apple (AAPL) Stock Falls on Reports it Slashed iPhone 13 Production Targets for 2021 Due to Chip Shortage, Analyst Mostly Negative

October 13, 2021 6:17 AM EDT
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Apple (NASDAQ: AAPL) has slashed its 2021 production targets by 10 million amid the ongoing chip shortage, Bloomberg reported yesterday after the close.

The Apple stock price slipped about 1.5% before partially recovering to trade 0.6% in the red in pre-open Wednesday.

The report added that Broadcom Inc. (NASDAQ: AVGO) and Texas Instruments Inc. (NASDAQ: TXN) are struggling to deliver enough components. Moreover, Apple is also facing component shortages from other suppliers.

As a result, the Cupertino-based tech titan cut its production target from 90 million to 80 million for the final three months of the quarter.

If you want to order a new iPhone from Apple’s website, it shows the order will be delivered in about a month. Some retail stores across the US have run out of supplies, especially for iPhone 13 Max and Pro versions.

Morgan Stanley analyst Katy Huberty has taken note of the report but said MS will be a buyer of any weakness in the Apple stock as AAPL is likely to receive more supply than competitors” while demand remains robust.

Huberty outlines three key factors that support the ‘buy the dip’ stance.

  1. Apple's significant revenue outperformance is consistent with supplier checks i.e. competitors may struggle even more, therefore Apple can increase share gains;
  2. Apple enjoys market-leading customer retention/loyalty i.e. demand isn't perishable and any supply shortage shouldn't materially impact valuation;
  3. Despite factory shutdowns, Apple's FY20 consensus revenue and EPS estimates were actually slightly higher than where they started the year.

“We'd expect the quarterly cadence of our iPhone shipment estimates to change, but expect little change to our FY22 annual iPhone shipment forecast of 238.5M units (+4% Y/Y). We'd also note that if Apple does cut C2H21 iPhone 13 production by 10M units, that would imply 77M iPhone 13 builds in C2H21, in-line to slightly higher than the last 3 years of C2H new iPhone model production. Additionally, from an overall iPhone perspective, and assuming no incremental impact to legacy iPhone model production, a 10M cut to builds would imply 125M total iPhone builds in C2H21, up 12% Y/Y and +4% compared to C2H19 when the iPhone production ramp was more on- schedule. This compares to consensus C2H21 consensus iPhone shipment growth of around 10% Y/Y,” Huberty said in a client note.

Unlike Huberty, her counterparts at Goldman Sachs and BofA are less positive about Apple. Goldman Sachs analyst Rod Hall has reiterated a Neutral rating as the Bloomberg report may explain extended lead times.

“On balance, most of Apple’s CQ4 demand occurs in the two weeks around Christmas each year and predicting consumer demand prior to that has proven very difficult. This year we remind investors that factors like re-opening, high consumer savings and supply shortages all combine to make predictions more difficult than usual this year. Having said that it remains our belief that Apple will find it increasingly hard to grow revenues and may well experience declining revenues for a period as the company laps positive COVID effects,” Hall said in a note sent to clients.

BofA analyst Wamsi Mohan has also maintained a Neutral rating on the Apple stock but the analyst expects Apple to top sales consensus by $4-5 billion.

“Constraints could more meaningfully impact the Dec qtr, where we expect Apple to come in below consensus. We continue to model 210mn iPhones for F22, meaningfully below consensus at 235mn. Beyond supply constraints, we are also concerned about the demand headwinds as U.S. stimulus benefits abate, China slowdown impacts sell-through and people push out upgrades for the next iPhone. Maintain Neutral on balanced risk-reward,” Mohan wrote.

The Apple stock price closed at $141.51 yesterday.

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