Apple fell to the lowest level since 17 February during trading on Friday, closing at $509.79.
Various reports are suggesting a number of reasons for the fall, including the 'lack-luster' launch of the iPhone 5 in China; declining orders experienced by Apple's supply chain; and lower than anticipated iPhone 5 demand. However, it may well be the case that investors are cashing in their shares in anticipation of the fiscal cliff and associated tax increases, expected to hit in January. Due to capital gains tax increases, investors are thought to be reviewing the portfolios that have seen the most gains.
1) Muted iPhone 5 launch in China
The iPhone 5 launched in China last Friday and Apple announced that it sold more than two million iPhone 5 smartphones in China in the first three days. However, despite this news, reports suggested that interest in the iPhone 5 launch in the World's largest market was muted.
For example, only two people queued up outside one of Apple's stores in Beijing before the store opened its doors at 8am. This is a contrast to the launch of the iPhone 4S in China 11 months ago when a massive crowd of hundreds had gathered outside the same store. However, that launch resulted in rioting, and as a result, Apple switched to a reservation system to sell its iPhone 5.
There was also heavy snow in the north of China, which is likely to have dissuaded people from queuing.
In addition, many earlier adopters in China will already own an iPhone 5, bought from the country's gray market vendors, notes Canalys analyst Jingwen Wang.
Apple currently ranks below the top five smartphone vendors in China, Samsung is the number one, followed by Lenovo, Coolpad, ZTE and Huawei (all Chinese companies).
UBS analyst Steve Milunovich says his "Chinese sources do not expect the iPhone 5 to do as well as the iPhone 4S," as a result he has trimmed his iPhone forecast by 5 million for each of the next three quarters and reduced his iPad outlook by 2 million for those same quarters, reports Forbes.
However, Milunovich adds: “We expect that China Mobile may start to sell iPhones in the December quarter, so a summer 5S with TD-SCDMA and fingerprint recognition is possible."
Apple revealed that China accounted for sixteen percent of Apple’s revenues, in its fiscal 2011, there are concerns that the company will not be able to sustain this.
2) Reduced iPhone demand sees Apple cut supply-chain orders
Reports from Apple's supply chain suggest that Apple has cut orders for the iPhone 5. A number of analysts are pointing to this and as a result have reduced their outlook for the company.
Citigroup analyst Glen Yeung claims that iPhone production has improved and as a result Apple has cut back orders from its suppliers. Yeung's concern is that the reduction in orders with Apple's suppliers appears to suggest that iPhone 5 demand is not as high as expected. If demand was high then Apple would have to keep iPhone 5 production going at full speed; the fact that it appears to be taking its foot off the the accelerator suggests demand is not so great.
Yeung claimed his checks suggest Apple has seen a "45-50% increase in monthly iPhone 5 production output October to December". Yeung added that this increased yield was "faster than expected" based on his "discussions with various points in the supply chain".
Yeung also speculates that a reduced time between product introductions may also cause supply-chain disruption. "We see execution risk for Apple as it decreases the time between new product introductions on larger volumes each time," he said, according to Forbes report.
As a result of his belief that reduced orders indicate that iPhone 5 sales will not be as strong as he expected, Yeung has cut his rating on the stock to Neutral from Buy, with a new target of $575 (it was $675). This has hurt a number of Apple’s suppliers: Broadcom's share price is down 3.13%, Qualcomm dropped 4.7%. Other Apple suppliers, Cirrus Logic and Jabil Circuit also saw their shares fall in value during early morning trading, writes Reuters. Hon Hai Precision Industry Co tumbled the most.
Yeung also notes a survey that found that over half of consumers prefer screen larger than 4.1 inches, "putting iPhone 5 at a disadvantage."
Yeung isn't the only analyst noting reduced supply chain orders. UBS analyst Steven Milunovich also noted that his supply chain checks indicate that "the iPhone build rate is falling". He claims that it will fall to 25mn units for the March quarter. UBS reduced its price target on Apple stock from $780 to $700, due to concerns about lower iPhone and iPad shipments.
Jefferies analyst Peter Misek also notes that Apple has "started cutting orders to suppliers to balance excess inventory". Misek claims iPhone orders have been dropped to 25-30 million for the March quarter, down from the 35-40 million range, according to Forbes.
Misek claims that Apple has cut its component orders because it over-ordered for this quarter, writes Business Insider.
Misek has reduced his iPhone shipment estimate for the first quarter of 2013 to 48 million, down from 52 million, Reuters reports.
Fubon Financial Holding Co analyst Jeff Pu is also cautious about Apple's supply chain, noting "weaker than expected demand". He said: "We are turning cautious on Apple supply chain, as we believe we are at the peak of many product cycles."
Pu added: "The most important message is 'iPhone 5 is game over,' as demand appears to be weaker than expected - i.e., US peaking, China launch just so so," reports Business Insider.
Gartner analyst Sandy Shen also suggests that Apple "is losing some steam". Shen claims Apple is no longer leading the innovation and the competition is closing in quickly and, in some cases, are ahead of Apple. "We’ve observed some serial iPhone users, people that have used several iPhone models, start switching to Android devices, indicating the company is losing some of its loyal users," writes Shen.
3) iPad mini cannibalization concerns
It's not only the iPhone 5 that is raising concerns. Citigroup analyst Glen Yeung notes that the iPad mini is outselling the bigger iPad, and this will affect the top and bottom line for Apple. He notes that the "strength of the iPad Mini is coming part at the expense of the iPad 4".
According to his supply chain sources: "iPad Mini production is expected to increase to 12-14 million units in the March quarter, whereas iPad 4 is expected to decrease to 5-7 million units."
He adds: "We view tablet innovation as increasingly difficult, opening room for alternative solutions to iPad and creating risk of further market share loss."
Yeung also notes that his survey shows that tablets under $300 are driving the majority of incremental demand," writes Forbes.
Future promise – television
Piper Jaffray's Gene Munster remains positive, maintaining his $900 price target on Apple, writes Business Insider.
Munster still believes the stock is going to get to $900 because of his belief that Apple has a television coming next year:
Munster isn't the only one. UBS analyst Steven Milunovich also adds that: "Apple is driven to make beautiful products. Whether it is an iTV, wearable computers, or another new product category, we have faith that innovation is not dead," reports Forbes.
Not so bad...
Morgan Stanley analyst Katy Huberty disagrees with the lack of demand theories. She says there is "strong demand" for the iPhone 5. In fact, she empnasises: "Importantly, a greater percentage of consumers plan to purchase the higher priced iPhone 5 as compared to iPhone 4S mix a year ago," notes a separate Business Insider report.
Huberty also thinks that the iPad is doing ok against the iPad mini. She claims: "Forty-seven percent of iPad mini purchases are to new customers, only slightly lower than the 56% for iPad 9.7". She suggests that this means the "cannibalization risk is manageable."
In addition Huberty thinks that Samsung's success is coming at the expence of other Android phone makers, rather than Apple.