Apple Supply Chain Checks Show New Cheaper iPhone, Shuffle, MacBook Coming

by: Craig Berger, Wedbush Morgan

Wedbush Morgan analyst Craig Berger recently sent a note to clients highlighting Apple's (NASDAQ:AAPL) product pipeline for the coming year. Excerpts follow:

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We have incremental checks into the Apple (AAPL) supply chain. First, we see several new Apple products coming in 1H09. Our contacts see a lower-cost version of the iPhone, possibly in mid 2Q. Apparently, Qualcomm (NASDAQ:QCOM) is replacing Infineon (IFX) as the baseband supplier in this device. Some call this device the "iPhone Nano"; whatever one calls it, we believe this device is on its way.

Also, we anticipate a new and smaller version of the iPod Shuffle, possibly in mid 1Q, with chip content largely unchanged.

Finally, we see a cheaper MacBook notebook coming, although we do not believe this PC will qualify as a netbook.

We have some incremental build volume checks. For iPhones, our checks suggest calendar 4Q build volumes were revised downward slightly versus our early December checks, with a partially offsetting increase to 1Q production volumes. We now see 4Q iPhone production down 53% QOQ, worse than last month's check of down 48% QOQ. For 1Q, we now see iPhone production down about 8% QOQ (versus our prior check of –25% QOQ, now off of a lower base of shipments in 4Q). Our calculations suggest end consumers could buy a theoretical maximum of 10 million iPhones in 4Q, including inventory at carriers (2 million units exiting calendar 3Q), at Apple, and at retail partners.

We did not get a full iPod or PC update, but we do have some incremental checks. These data show that the magnitude of recent production cuts is lessening and that order patterns among component suppliers may begin to stabilize (somewhat) versus the past few months.

We think these checks are slightly positive for Apple's PC chip suppliers (INTC, MRVL, LSI, NVDA) and neutral for its iPhone chip suppliers (BRCM, MRVL, LLTC, NSM, TQNT, SWKS). For the stocks, we think risk/reward dynamics are attractive for intermediate-term investors, with the SOX trading at 207. We believe a fundamental bottom may form in 1H09 and that distributors may replenish component inventories sometime this summer, providing an industry catalyst in 2H09. Our preferred longs, in order of preference, are ONNN, MRVL, MSCC, SLAB, IRF, BRCM, FCS, and ATML.

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