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This Report Says iPhone Supply Chain Orders Have Weakened, And It's Sending Apple Shares Lower

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This Report Says iPhone Supply Chain Orders Have Weakened, And It's Sending Apple Shares Lower
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  • Apple Inc. (NASDAQ: AAPL) shares have appreciated 7.54 percent over the past month, hitting a high of $123.33 on November 3.
  • Kulbinder Garcha of Credit Suisse has maintained an Outperform rating on the company, with a price target of $140.
  • Although continued weakness in the supply chain could pressure the stock going forward, Garcha expressed optimism regarding Apple’s high retention rate, installed base growth and smaller 4-inch iPhone optionality.

Analyst Kulbinder Garcha stated that the supply chain orders for the iPhone weakened in Asia recently. According to the Credit Suisse Asia team, the company has reduced its component orders by as much as 10 percent.

"The cuts seem to be driven by weak demand for the new iPhone 6s, as overall builds are now estimated to be below 80mn units for the December quarter and between 55-60mn units for the March quarter," Garcha mentioned.

Related Link: 5 Reasons To Own Apple Heading Into 2016

Despite the near-term pressures, Garcha believes that the iPhone installed base would grow to 615 million over time, driven by Apple’s recent expansion. In addition, the new installments plans are expected to drive higher units in the long term.

The company’s recent capex guidance and obligations purchase point towards 25 percent upside to the iOS unit estimate.

Following the "relative failure of the iPhone 5c," Garcha believes that "a 4'' iPhone, without force touch, would be a noticeably different form factor than Apple's existing products and could be incremental to both revenue and EPS."

If a lower-end iPhone is launched in 2016, it could add about $0.62 to the CY17 EPS, while driving iPhone units to 265 million in the long term.

The CY16 unit estimate has been lowered to reflect the weak demand for the iPhone 6s.

Apple shares were down about 2 percent at $118.12 in Tuesday's pre-market session.

Latest Ratings for AAPL

DateFirmActionFromTo
Jan 2017OTR GlobalDowngradesNegative
Jan 2017GuggenheimInitiates Coverage OnBuy
Dec 2016PiperJaffrayAssumesOverweightOverweight

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

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