Is This the Real Reason Behind iPhone Cuts?

Verizon iPhoneYes, those much-discussed iPhone component cuts were real, but they came not because of lowered demand but because Apple (NASDAQ:AAPL) decided to make changes to its supply line. That argument has been made by Trip Chowdhry of Global Equities Research, who wrote in a research note that worries about iPhone production, which resulted in the stock dropping below $500 earlier this week, had been overdone.

According to Chowdhry, Apple was, in fact, in the process of transferring from using traditional displays for its mobile products to IGZO screens, which are made of a compound semiconductor and “get days of standby despite greater brightness and resolution, thanks to lower battery use.”

Should you buy or sell Apple’s stock ahead of earnings in a few days? Our 20-page proprietary analysis will help you save time and make money. Click here to get your SPECIAL REPORT now.

Apple has long been rumored to have invested in Sharp, which pioneered the new technology. The analyst met Sharp executives at the Consumer Electronics Show, where the display maker showed off the first IGZO-based smartphones that are now being sold in Japan.

“Based on our discussions with technologists at [various display] conferences, here is the converged view we got: Apple cut LCD orders by 40 percent to 80 percent not because the demand has declined by 40 percent to 80 percent but probably because Apple is shifting to IGZO (Indium Gallium Zinc Oxide) display technology,” Chowdry wrote, according to Barron’s. “IGZO is ideal for large TV panels; IGZO is also ideal for flexible displays such as in the new iPhones, iPads and MacBooks; IGZO has 40 times faster response time than today’s LCD TVs.”

According to the analyst, the new technology will be good for Apple in terms of cost and because it is easier to manufacture than current systems. Chowdhry also reiterated an Overweight rating on Apple shares and a $650 price target.

Wedge Partners’ Brian Blair agreed with Chowdhry in the sentiment that reports of lower-than-expected iPhone demand were “simply erroneous.” According to Blair, component order cuts were a result of production improvements.

Start 2013 better than ever by saving time and making money with your Limited Time Offer for our highly-acclaimed Stock Picker Newsletter. Click here for our fresh Feature Stock Pick now!

“A portion of the iPhone panel forecast cuts are due to Apple having ordering aggressive panel volumes in November/December due to low yield ratios at the time,” Blair wrote in a research note. “As panel yields improved and production levels were being met, Apple pared back panel production volume that it might have needed to move into Q1, should panel demand have been tight. So in short, Apple adjusted down production of panels as Q4 supply levels were sufficient.”

Don’t Miss: Tom DeMark: Apple is Set Up for a Rally to $600.