Analysts Eye Apple Amid Japan Crisis

Mar.17.11 | About: Apple Inc. (AAPL)

By Sheena Lee

Apple (NASDAQ:AAPL) shares slumped yesterday after JMP Securities Analyst Alex Guana downgraded shares of the tech giant to Market Perform from Market Outperform on supply chain concerns, but today Credit Suisse analyst Kulbinder Garcha bullishly initiated the iPad maker at Outperform with a price target of $500, pushing the stock back up.

Garcha writes in a research note that Apple should be able to deliver huge growth over the next two years: 50% annual growth at the top line, with 46% growth in profits, "given a sustained competitive advantage in software, hardware" and apps. Both the iPad and the iPhone will also remain huge drivers for the company, he added. The tablet sector could be worth $120 billion by 2015, and Apple could maintain as much as 50% market share.

JMP’s Gauna cited a slowdown at Apple’s Taiwan-based manufacturer Hon Hai Precision Industry (2317), also known as Foxconn. "We don’t know the cause 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 risk around the iPad 2," Gauna said.

However, other analysts disagreed with Gauna’s comments and said that Apple’s Japanese suppliers are the ones to watch.

Chitra Gopal and Steve Fox, two analysts at CLSA said JMP’s theory is wrong because Apple’s share of Hon Hai sales isn’t that large. But Japanese suppliers such as Ibiden (4062), Sony Chemical and Hitachi (6501) could pose a problem to manufacturing, they said.

Piper Jaffray analyst Gene Munster, who reiterated an Overweight rating and a $483 price target on Apple, said this morning that there could be some short-term component issues, but he thinks the impact should be limited.

"In a conversation with a contact in Asia last night, we found the production status from component suppliers is changing by the hour," Munster writes. "It appears no one has a good handle of the extent of damage and when production will resume. What we do know is Mitsubishi Gas Chemical Co., which we believe is Apple’s primary supplier of BT resin (used in producing printed circuit boards for chips in iPhone and iPad) is temporarily shut down to assess damage related to the earthquake. Also, Toshiba which makes around 40% of flash around the world, is temporarily shut down to assess damage. In both cases it is day to day as to when production will resume."

"Historically, calls based on supply-side concerns have led investors astray, but demand for Apple’s products continues to rise…also note that demand is stronger than ever" for Apple’s products, "Which should move shares higher," writes Munster. Apple has also practiced the strategy of buying future contracts on key components, and making large committed orders in advanced, which will put the company ahead of others, he said.

Pacific Crest’s Andy Hargreaves also remains confident on Apple shares. "The extraordinary level of demand for Apple’s products appears to be continuing early in 2011, and we do not believe the tragedy in Japan will impair this." Hargreaves reiterated an Outperform rating and $420 price target on Apple.

Source: Alacra Pulse, Forbes, Barrons, Business Insider, Triangle Business Journal, The Street