Apple Back-Up Caused By Supply Chain, But Is Demand Shifting?

| About: Apple Inc. (AAPL)
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The recent fall in Apple (NASDAQ:AAPL) shares, from over $700 on September 21 to a little over $650 now, could be seen as a natural pullback, a buying opportunity.

But is it?

The problem here isn't in the Maps software - that's being fixed and dealt with. It's not really about the customer service, the company blaming customers when their photos don't come out right.

Investor attention needs to be focused on the supply chain, which is straining to keep up with demand. Rumors of a strike against Foxconn in China were first denied, then confirmed. The Taiwanese company, which employees 1 million Chinese, is apparently readying a new factory in Brazil for the (yet to be announced) iPad Mini.

Connectors will remain in short supply for months, and even iPod orders are now backed up by weeks. Will customers continue to wait as we go into Christmas?

More worrying should be big sales at Samsung, a spike that was sustained after the iPhone 5 launch. The question occurs, will the iPad's early dominance be cannibalized by Android, just as the iPhone's was?

Indications now are that might be happening with Android taking almost half the tablet market, according to a Pew Internet and American Life project survey. The survey, described here, shows the Amazon (NASDAQ:AMZN) Kindle Fire taking 21% of the market, and other Android-based tablets doubling their share of the market from 12% of the market last year to 25% this year.

This doesn't mean Apple lacks defenses. The brand is now as popular as Coca-Cola, Apple's cash horde has now become the world's largest hedge fund, and any reluctance by suppliers can be met by finding new suppliers. Apple now has the power to dictate new, more favorable terms to app suppliers and even shut down iTunes operations for Christmas, even though that's the big selling time.

But defenses cost money. Both Apple and Google (NASDAQ:GOOG) are now spending more money fighting over patents than on actual research for new things they might patent. That is a worrying sign for the future.

How should investors react? One lesson is to avoid past patterns, and lean against assumptions of the future copying the past. Last year's third quarter numbers saw a sell-off in AAPL, but I think that sell-off has already happened, and a minor blip in the fundamentals may in fact be a buying opportunity.

Much more troubling will be the numbers from early next year, as the impact from higher Android share comes into focus. January is when I might start looking at a bearish case, perhaps playing the options and being ready to get out quickly if I'm wrong.

So buy now, and sell at leisure. Apple is moving from the growth phase to the profit extraction phase, and you may want to act accordingly.

Disclosure: I am long AAPL, GOOG. 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.