If Apple's iPad sales slow, then everyone's in trouble

By Jonny Evans

Fresh reports claim Apple [AAPL] has reduced production orders for the iPad 2, generating a raucous run of reactions claiming there's something unusual about this. There isn't, of course.

[ABOVE: A rather pleasant interval clip featuring music composed by Eric Satie.]

Economy bites

Apple has apparently been telling suppliers the order reduction reflects the worsening economy.

JP Morgan believes that Apple has lowered its component orders with several vendors by around 15-20 percent, so this could mean the company now hopes to sell 15 million iPads before the end of the year, rather than the 17 million units it had originally projected.

"In July and August 2011 Apple's supply chain was told that the vendor would release orders totaling 32-34 million units of the iPad 2 in the second half of the year, with those in the fourth quarter reaching 17-18 million units, according to the sources. Apple reportedly has now lowered the volume for the fourth quarter, citing the bad economy, the sources added," as reported by Digitimes.

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[ABOVE: iPad sales seem steady and growing.]

The truth, the whole truth, and nothing but?

Stopping momentarily only to observe that 13 million tablet sales is the kind of ordering level Apple's competitors can presently only dream of, what could be behind the cut?

-- The economy: Like it or not, the problems in the world's financial markets are impacting the way we live and people are cutting back on excess spending. An iPad may be the perfect post-PC device, but people are more likely now than even a few months ago to want to tweak a year or two more life from what they are using already.

-- Amazon: Apple knows that Amazon is plotting its own tablet, and this is likely to eat some of its sales at the low end. There's multiple reports claiming the product (the Amazon Fire) could be announced as soon as this week, and that the 7-inch device will be cheaper than an iPad.

The Amazon Fire lacks a camera and is slower than an iPad. It runs a custom version of Google's Android OS, and offers a direct link to an Amazon-created app store and Amazon's array of digital products: music, books, films.

Amazon's compelling proposition is that its tablet links with its media store, emulating at least some of the iTunes/iPad connection.

-- The competition: They may all be losing a ton of cash in their attempt to take a toe hold in Apple's tablet market, but they are making a little ground. Not a lot, to be fair -- Apple sold 9,250,000 iPads in its last quarter.

-- Strategic choice: Apple will be delivering the iPhone in the next few weeks. We think it will be the iPhone 5, possibly accompanied by the iPhone 4S. Continued lack of speculation surrounding the iPod range could suggest Apple has a few surprises planned there: A 7-inch iPod touch? An iPod nano+ iPhone connectivity? Pure speculation, but it wouldn't be the first time Apple quietly managed to achieve something under the radar.

Will Apple want to focus market attention on its new iPhones or its new iPads? Which of the two products does it most want shoved quietly under the tree in the Christmas quarter? I think Apple wants to shore up smartphone market share to counter the growing Android army.

-- The next-generation: Some speculate Apple intends releasing a new model iPad 3, saying the cut-backs in component supply reflect the company setting the scene for the new device. The new model iPad doesn't seem set to ship until next year, so I consider this unlikely, unless the company has vast stocks of some components -- or has a large, Samsung-replacing supplier waiting in the wings.

If Apple's feeling it, then the PC industry is feeling it too

So why has Apple reduced its orders? The most obvious reason, the one the company admitted, is probably the best: the economy.

This should give competitors no reason to cheer. Apple is ascendant at this time, returning PC, iPod, iPad and iPhone sales that continue to impress.

Other players aren't seeing anything like this level of accomplishment when it comes to manufacturing product demand.

If Apple's sales figures are down 15 percent on previous projections, then competitors in the PC space should probably be very afraid, as if the recession is hurting Apple, then the upcoming earnings season seems set to be very gloomy indeed.

There's one more possibility: perhaps these claims of reduced orders are false. Digitimes again:

"Taiwan-based flexible PCB makers, including Career Technology, Flexium Interconnect and Sunflex Tech, have begun shipping FPCBs for iPad 3 and total shipment volumes of iPad-use FPCBs in the fourth quarter of 2011 will remain at the same levels as recorded in the third quarter despite market reports stating that Apple has lowered iPad 2 orders for the fourth quarter by 25%, according to industry sources."

This story strongly suggests Apple's business remains on track and that iPad 2 -- and, in future -- iPad 3 orders remain on target.

We'll find out more on this when Apple reports its fourth quarter financial results on October 18. The company has previously anticipated revenue of about $25 billion. The current quarter has seen strong demand for the new MacBook Air configurations, while iPad and iPhone sales remain strong.

Your thoughts?

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Copyright © 2011 IDG Communications, Inc.

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