Did We Hit Peak iPads Already?
The whole world worries about hitting peak oil. That's the point where oil consumption will outpace production until the end of time, digging into reserves instead of building them.
Inventing a new market metric
OK, so "peak iPads" isn't likely to catch on like "wazzup" or "booyah" did, but what else would you call a 25% quarter-over-quarter slowdown in tablet units produced?
According to the analyst's sources inside the gadget-production food chain, iPad manufacturer Hon Hai Precision Industry has pulled down its iPad 2 component orders drastically heading into the crucial fourth quarter. Bloomberg and others couldn't drag much color commentary out of the JPMorgan crew, and the report didn't list which of Apple's many parts suppliers had reduced their orders.
There's no shortage of gloomy semiconductor reports at the moment, including important iPad player Texas Instruments (NYS: TXN) . But JPMorgan's tale of woe concerns only the last few weeks. Hence, the real story will only be known when the next earnings season begins in October, giving plenty of iPad-riders such as Cirrus Logic (NAS: CRUS) and TriQuint Semiconductor (NAS: TQNT) an opportunity to discuss their sales trends. So those early warnings don't shed any light on the iPad drama.
Of course, the analysts might have focused on non-chip hardware suppliers.
That didn't stop investors from panicking: Apple shares fell as much as 3.2% on the news. Apple bounced off that low point rather quickly, rescued by a throng of analysts with a sunnier take on the situation. Still, the stock just about broke even on a day when the Dow Jones (INDEX: ^DJI) looked robust. That's significant when we're talking about one of the largest and most discussed companies on the market.
Analysts to the rescue!
Susquehanna's semiconductor analyst Chris Caso flat out dismissed the report as "not true." At worst, fourth-quarter manufacturing will slow down from an inflated third quarter -- simply because Apple wants some extra inventory ready for the holiday rush. Where would you rather have your iPad on Christmas Day -- nestled under the tree or rolling down a manufacturing line in China?
Moreover, iPad 3 production should kick in somewhere around the end of the year. Ordering tons of extra iPad 2 units wouldn't make economic sense with the next-generation launch imminent. As a reminder, the iPad 2 was launched early in March this year and available for nearly immediate shipping.
But that's not all. Piper Jaffray mentions a detail that many other analysts seem to have forgotten or ignored: "Apple is currently transitioning to Brazilian iPad manufacturing, which may be impacting Asian manufacturing numbers."
Indeed, Hon Hai recently opened up a massive Apple-focused manufacturing facility in Brazil. Building the systems there would result in quicker shipping to stores and consumers -- but then the builder would need to order Asian components a bit earlier instead.
The final verdict
Peak iPads is hogwash at this point. A combination of hard and circumstantial evidence shows that the initial report missed the mark.
I do have a vested interest in the iPad's short-term success thanks to my synthetic long position in camera-chip builderOmniVision Technologies (NAS: OVTI) , so my near-term goggles might be a little rose-tinted. That said, I think JPMorgan started a needless panic this morning. I was a skeptic when the tablet was launched, and I still see it as more of a short-lived toy than a permanent fixture in the computing universe, but rumors of its death are years ahead of their time. Whichever one of the many available explanations happens to pan out, there's no reason to worry about peak iPads just yet.
The iPad killers are coming, fellow Fool Rick Munarriz says. They're just haven't arrived yet. Make sure you don't miss the final battle: Pull up a lawn chair, pop open a bag of salty snacks, and add Apple to your Foolish watchlist. It's like having a ringside seat at the world's largest consumer computing arena.
At the time this article was published