The Latest Apple Supply Chain Rumor to Ignore


Haven't we been through this before? Didn't Tim Cook (and I) specifically tell investors not to pay too much attention to each and every Apple rumor that makes its way out of the Mac maker's Asian supply chain? Overanalyzing the constant stream of questionable data points can promptly lead to misreading the bigger picture.

Well, shares were down by nearly 1% this morning while the broader market was enjoying modest gains, so it would appear that investors are taking the latest rumbling a little too seriously even though we're talking about a rumor that should be promptly ignored for several reasons.

Why so serious?
DIGITIMESis out with a report that iPad panel supplier LG Display saw 9.7-inch panel shipments plunge an incredible 90% sequentially in January. The panel provider reportedly shipped 6 million units during December and moved merely 600,000 last month. January normally sees some sequential declines because of seasonal factors, but this time around the drop off in 9.7-inch displays is particularly large.

The drop is naturally due to the shift in consumer demand from the full-sized tablet to the smaller iPad Mini, as well as other low-priced tablets in the smaller-sized segment of the market. The decrease in shipments also supposedly hurt LG Display's broader performance in January, even as the company believes 9.7-inch panel shipments will bounce back in the second quarter because Apple is expected to release a fifth-generation iPad with a redesign similar to the iPad Mini and new iPod Touch.

Much like Apple's record earnings, LG Display is also coming off of a record quarter. The panel vendor just posted record quarterly and annual sales. The company generated slightly more than $8 billion in revenue during the fourth quarter, with CEO Dr. Sang Beom Han citing particular strength in high-resolution IPS panels. That could be referring to display panels found in either the Retina iPad or the Retina MacBook Pros, as LG Display sources high-resolution IPS panels to both of those Apple product families.

The company is still reportedly shipping 3.5 million to 4 million panels per month destined for the iPad Mini, which represented the majority of the 5 million total panels that LG Display shipped for Apple.

It's all part of the plan
There are several reasons why investors would be justified in ignoring this rumor. First and foremost, DIGITIMES has made a name for itself as notoriously hit-or-miss and at times even reports rumors that simply make no sense whatsoever.

This report is like many in recent times that stoke fears that demand is dropping off for Apple devices, but ultimately they paint an incomplete picture at best and are simply inaccurate at worst.

If LG Display is indeed seeing 9.7-inch shipment declines, Apple also sources those displays from Samsung and Sharp. It turns out that Sharp has also reportedly seen production of 9.7-inch iPad displays decline significantly. That report came from Reuters, which is far more reliable than DIGITIMES.

However, investors still can't accurately glean the bigger picture without knowing what's happening at Samsung, where Apple's inventory positions are, how the product mix is shifting, or when new iPad models will launch, among many other factors.

There's a little bit of data on Apple's inventory position. Cook said that Apple closed the quarter with 3.4 million iPads in channel inventory, which was below the company's target range of four to six weeks of channel inventory, but that includes all iPad models. The iPad Mini was constrained during the December quarter, so the shortfall in target inventory likely relates to that device and Cook predicted that Apple would achieve demand balance this quarter. This has seemingly now occurred as Apple's online store shows the iPad Mini in stock.

Cook is a man with a plan, and I trust him over DIGITIMES any day.

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