Handicapping Apple iPad And iPhone Sales

| About: Apple Inc. (AAPL)

The Apple (NASDAQ:AAPL) supply gurus have leaked again to Digitimes. And, according to the reports, Apple iPad Mini orders from Cupertino have rebounded back to 10 million, after faltering to 8 million on fears component yields were coming in light.

The news is marginally good, suggesting Apple at least has a chance to sell what they had originally hoped this quarter. For comparison, the company reported it sold 3 million of the device during its debut weekend.

The rumor also suggests Apple will order a similar number in Q1. That could be interesting given speculation from RBC Capital's analyst the Mini will get a refresh in spring.

It's pretty hard to imagine cutting edge changes in a new version, given how recently this one was launched. Perhaps Mini 2.0 will get a better processor and a retina display.

The component yield issues haven't been limited solely to the iPad Mini.

Talk of cuts to Apple's iPhone 5 orders for December are likely the result of similar component shortfalls.

Following the cut in orders and ensuing share price drop, both Topeka Capital and Wells Fargo stepped in to reassure investors Q4 iPhone sales targets remained intact. At Wells Fargo, the number of units expected to sell this quarter stands at 46 million. Over at Stern Agee, they're targeting 47.5 million.

Following the launch in China last week, Apple reported it sold 2 million iPhone 5's in the first weekend it was available in China, marking what CEO Tim Cook claimed as "the best first weekend sales ever in China." For comparison, 5 million were sold on its September launch.

A bigger wildcard for earnings is likely in the iPad itself.

One of the biggest questions investors will want answered is how cannibalized were sales by the Mini? If folks tend to flock to the cheaper and lower margin smaller device, it will be tough for Apple to offset the pressure on margins. Generally, analyst estimates seem to be hovering north of 20 million iPad's sold this quarter, down from earlier estimates nearer 25 million plus.

Back in November, I outlined the five most worrisome trends facing Apple shareholders, and it remains unclear whether any of them will be resolved this quarter. Slowing year-over-year growth may benefit from having more products on the shelf. But, operating margins and net income face tough hurdles given Mini's margin impact.

The cash rich, debt poor balance sheet provides cushion.

As I wrote in November, the allure of dividends isn't what it used to be heading into tax hikes next year and the cushion provided by a rock solid balance sheet surely hasn't insulated investors from the dramatic drop in share prices.

Which brings us to the all-important question, where are shares heading now?

The upside is capital gains inspired selling will abate in no more than two weeks. At that point, day and position traders forced to sell in October and November at losses to cover margin calls will no longer have the 30 day wash sale window keeping them from getting back in.

At $521 per share, Apple is trading at a hair above its 5 year PE low. People have certainly been pricing Apple for imperfection. And, for the chartists, there is arguably a double bottom forming. Although, if it closes below $500 it's hard to believe we wouldn't go to $450.

The Q4 earnings are expected on January 24th and the two weeks prior will be filled with back-and-forth on whether the tide is turning up, or turned for the worse.

The key will remain units and product mix. If iPad isn't overly short circuited by Mini and iPhone comes in where it needs to, shareholders will at least have a lower bogey in the form of analyst expectations to beat.

One potential tailwind may come from rebounding interest in technology stocks overall. The basket has woefully underperformed this quarter. But, recently signs are turning more bullish.

The S&P Technology ETF (NYSEARCA:XLK) has fallen 4.68% this quarter, while the S&P 500 ETF (NYSEARCA:SPY) is flat. However, semiconductors (NYSEARCA:XSD) have returned 6.4% in Q4. And the XLK has marched 7.9% higher this month, far outpacing the 2% gain in the S&P 500.

This suggests sector tailwinds could provide some support, particularly if Apple's shares can keep their nose above $500.

While fundamental analysis is most helpful in uncovering longer term seismic changes, the technicals are ruling the stock through earnings. So, absent any blockbuster news investors willing to try to position a trade in the stock from here until then should be willing to use a stop loss.

What do you think? Give your best guess for iPad, Mini and iPhone 5 sales in the comments section.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.