Apple (Nasdaq:AAPL) Cuts iPad, iPhone Production in 1st Quarter

Citing their contacts, FBR Capital said they're seeing Apple (Nasdaq:AAPL) cutting production for its iPhones and iPads for the first quarter 2011, based on checks as of November 23.

FBR said, "We have an interim update into the Apple (Nasdaq:AAPL) supply chain with implications for Broadcom (Nasdaq:BRCM) (OP), QUALCOMM (Nasdaq:QCOM) (OP), and Linear Technology (Nasdaq:LLTC) (UP). In short, our contacts saw calendar 1Q'11 production cuts for both iPhones and iPads versus our November 23 checks. For the iPhone, 1Q'11 production is now set at 16.1M units, a 4% negative revision versus our prior checks, but still up 7% QOQ. We hear some iPad cannibalization impacts could be driving the build reduction, as well as some customers (especially 3GS customers) choosing to wait until the new iPhone 5 is launched this summer. Strong end demand is still driving sequential growth in 1Q iPhone production, completely bucking normal seasonality. For the iPad, we believe 1Q'11 production is now set at 6.0M units, a 30% negative revision versus our prior checks, and now down 21% QOQ. We hear Apple will clear out iPad inventory to make way for the iPad 2, with initial production beginning in 1Q'11. For the iPhone and iPad, strong sell-through could drive the 1Q'11 production forecasts higher from here. For the sector, chip stocks have had a powerful move higher since September 1 and, while the rally could continue through CES in early January, we think some investors could take profits in the near term. Indeed, we continue to think the sector is not totally out of the woods yet, regarding previously discussed ship-ahead risks, as downstream supply chain participants no longer replenish inventories and could de-stock. In our 3Q10 inventory analysis (published 11/17/10), we specifically called out inventory dollar growth at distributors (+24% QOQ) and EMS firms (+12% QOQ) as the worst offenders. We remain constructive on chips for 2011, given very robust end-demand trends, still low capacity, and high earnings power, though we think chip stocks could digest gains early in the year as some choppiness creeps into estimates. Defensive chip stocks currently include National Semi (NYSE:NSM),Intel (Nasdaq:INTC), Microsemi (Nasdaq:MSCC), and QCOM (given a robust Apple ramp likely in 1H11)."

Apple closed Monday at $321.67, up $1.11, or 0.35 percent.