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  • Foxconn Slowdown Portends Trouble for Apple, iPad 2 Production


    The reported slowdown in production at the Foxconn facilities in China is not only sparking concerns about further iPad 2 supply shortages, but also spooking Wall Street Analysts, some of whom are now downgrading shares of Apple to "market perform." Just this morning JMP Securities analyst Alex Gauna downgraded Apple from “market outperform” - a rarity in recent years on Wall Street.

    According to a note to investors, Gauna made the downgrade projection based on what he's hearing about Foxconn. Subsequently, Gauna says he made the call “to reflect risk associated with the notable deceleration in its primary manufacturing partner Hon Hai (Foxconn) that was emerging even prior to the amplified uncertainty created by developments in Japan.”

    We don’t know the source of the Hon Hai deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2. While we see Apple’s five-year track record of upside surprises (averaging 23%) and YTD outperformance (AAPL +7.1% vs S&P 500 +1.9%) as exposing the stock to near-term downside risk towards its $300 [200-day moving average].
    Of course, Apple has a long record of surpassing Wall Street expectations. Still, the problem at Foxconn is exponentially more worrisome than any analyst's stock projection. As production slows and demand for the iPad 2 reaches fever pitch domestically (and soon globally), the supply shortages following Apple's most recent product launch could be far worse than any supply shortage Apple has faced before.

    Source: Wall Street Journal
    This article was originally published in forum thread: Foxconn Slowdown Portends Trouble for Apple, iPad 2 Production started by Michael Essany View original post