Is the iPad Apple’s Real Problem?

ipad appleLast week, JPMorgan’s Mark Moskowitz had dismissed reports of falling iPhone demand as just “noise,” but the analyst has identified a different source of worry for Apple (NASDAQ:AAPL). While the holiday season was a blockbuster one for the iPhone 5, sales of the iPad may have been lighter than expected because of supply issues, Moskowitz wrote in a note to investors on Thursday.

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The analyst, who has forecast iPhone unit sales of 48 million in the December-ending quarter, trimmed his iPad sales estimate for the three-month period from 20.1 million to 18.4 million units. Supply chain constraints, which dominated the buzz around Apple all of November, were to blame. “While lighter iPad units could frustrate investors, we believe the miss is explainable,” he wrote. “In our view, it was a supply — not demand — issue.”

The analyst also cut his price target on the stock to $725 from $770, citing “a reduction in valuation multiple ranges to reflect bruised investor sentiment,” but added that this may be a temporary requirement. He retained an Overweight rating on the stock and said Apple’s gross margins could recover faster than most expect. How so?…

“In our view, many investors have been locking in gains on Apple and reducing the relative weighting of the stock in their funds because it was difficult to defend a stock where gross margin declines were expected in the coming year,” he wrote. “This overhang stands to subside faster than expected, in our view, if component order cuts related to iPhone 5 imply manufacturing yields and thereby gross margins are on the rebound.”

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According to the analyst, the smartphone market will grow 30.5 percent this calendar year and Apple will see a 28.6 percent shipment growth in the sector. “Over time, we expect Apple to have the opportunity to harvest more profits in smartphones, especially as the European wireless carriers build out LTE networks in the next 12-18 months,” he wrote. “The build out of LTE networks in the U.S. has been strong, but Europe has been lagging.”

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