Apple is not immune to the worldwide economic slowdown. According to a note issued today by J.P. Morgan, “multiple supply chain vendors” have confirmed that the Cupertino, Calif.-based company has cut orders by 25% for iPad components from supplier Hon Hai Precision, better known as Foxconn, over the past two weeks. That is the first such reduction seen by the analysts, who are based in Hong Kong.
The move, first reported by Bloomberg News, has spooked investors who expected Apple to be ramping up parts orders ahead of the holiday season, not cutting them. Shares of the iPad maker fell $8.03, or 1.99%, to $326.27. Apple shares are up more than 25% this year.
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“It’s back to reality,” Wanli Wang, an analyst RBS Asia Ltd., told Bloomberg. “Now it seems even for Apple, due to the market situation, we need to be conservative.”
Though the Asia based team of Gokul Hariharan, Alvin Kwock and Ashish Gupta, expect that Hon Hai’s iPad shipments will fall to 13 million in the fourth quarter versus 17 million in the third quarter, U.S. analyst Mark Moskowitz, who follows Apple, is maintaining his third and fourth quarter iPad sales forecast of 10.9 million to 12 million units.
How can Apple buy fewer iPad parts without affecting shipments? There are two ways. First, is to sell units that would have gone to European countries with faltering economies to stronger countries such as the U.S., China and Australia. As Bloomberg notes, it is financially prudent for Apple to have the smallest possible stockpile of parts.
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Apple is a demanding customer. According to J.P. Morgan, “Hon Hai may have recently given up some of the price increases secured for iPad 2 to keep 100% of the business (and keep out Pegatron).” Pegatron is a rival Apple supplier to Hon Hai. If these “inventory reductions” do save Apple money, the tech heavyweight will pass on those savings to consumers. It has little choice. The iPad 3, which was originally set to be released in 2011, is now expected in 2012. A lower priced iPad may help Apple maintain its dominance in the tablet market ahead of Amazon’s expected release of an iPad rival, which may happen this week.
Amazingly, Apple managed to increase its market from 66% in the first quarter to more than 68% in the second quarter, according to market researcher IDC. At the same time, the share for Google’s (NASDAQ:GOOG) Android operating system fell to 27% from 34%. Given those figures,. it’s not surprising that many Android tablet makers are offering discounts to make up for lost ground, a trend that will likely continue through the holidays.
Follow Jonathan Berr on Twitter @jdberr.