Apple's iPad 2 build plans still 'well above expectations'
Checks with distributors have indicated that Apple is experiencing strong demand for the iPad 2, analyst Shaw Wu with Sterne Agee said in a note to investors on Tuesday. He expects Apple to ship a total of 27 million iPad units in the second half of calendar 2011.
If that number holds, it would be ahead of Wall Street's consensus of between 24 million and 26 million. Wu sees Apple selling 12 million iPads in the September quarter, and another 15 million in the December quarter.
Wu's note came in response to a report on Monday that suggested Apple had cut build orders for the iPad 2 by 25 percent. That news caused a scare among investors and sent AAPL stock briefly downward.
Wu said that his own checks with supply chain sources found there is "some merit" to claims of production cuts. But he's not concerned by those cuts, as they are due to improved capacity and better inventory management, leaving build plans that are still "well above expectations."
"The iPad 2 started shipping in March 2011 making the product likely due for an update near its 1-year anniversary," he wrote. "We would also like to remind investors that production changes are common throughout a quarter and through the lifecycle of a product. Not all changes have had the benefit (or detriment) of being newsworthy."
Typically, build plans are between 25 percent and 33 percent above actual shipments. Wu said this is to ensure that there is an adequate supply of components and production capacity to meet consumer demand.
"This takes into consideration rush orders, buffer inventory, component lead times, yields, and potential disruptions like the plant explosion back in May," he said. "AAPL is more often than not constrained so it is understandable why it tries to get suppliers to overprovision and go overdrive.
"The other benefit from this is that it helps in building scale and driving down costs quicker. This has worked to mutual advantage for both AAPL and its suppliers."
As evidence of Apple's build plans significantly exceeding shipments, one report earlier this month indicated that Apple was set to build a whopping 20 million iPad 2 units this quarter, representing a 60 percent growth in sequential shipments. Putting that number in perspective, Apple shipped a record 9.25 million iPad units in its last fiscal quarter, which was a 183 percent year-over-year increase.
Wu is the second analyst to concur with rumblings from Apple's Far East supply chain that iPad 2 orders have been cut. But like Wu, analyst Gene Munster with Piper Jaffray said on Monday that he is not concerned by the alleged changes, as he doesn't necessarily see them as an indication that Apple is experiencing reduced demand for the iPad 2.
Munster, too, noted that Apple's absolute sell-in figures for the second half of 2011 likely remain "well above" his own estimates, which call for 10 million iPads in the September quarter and 12 million in the December quarter.