We're still backing Apple, even as shares fall on supplier report about new iPhones

Published Wed, Sep 28 202212:18 PM EDTUpdated Wed, Sep 28 202212:36 PM EDT

Club holding Apple (APPL) shares were trading down more than 3% Wednesday after a Bloomberg report said the tech giant told suppliers its bailing on plans to increase production of its new iPhones amid more limited demand. But how seriously should investors take the news? As mentioned in Jim Cramer's morning note Wednesday , these reports are not confirmed and not something he heard when speaking with suppliers on the West Coast earlier this month. Of course, this is not the first time we have seen headlines calling out iPhone demand weakness based on anonymous supplier sources. For those that missed it, Jim discussed his own experience with a supplier disclosing details of Apple orders to him – and the consequences that followed – during the Club's Wednesday meeting. It is also worth emphasizing that, even if true, the Bloomberg report only says Apple is no longer pursuing plans to increase production, not cut initial targets. Apple is still expected to produce roughly 90 million iPhone 14 units , in line with initial production expectations. The analysts' perspective Over at Morgan Stanley, analysts take the headline to mean that "upside from better-than-expected iPhone 14 Pro/Pro Max demand is likely being offset by weaker initial iPhone 14/14 Plus demand." Put another way, the report largely serves to confirm what we already knew : The general consensus is that the base model iPhone 14s are not enough of a step up from the 13 model to warrant an upgrade, whereas the Pro models are seeing some of the strongest lead times in the past 6 years. Morgan Stanley said the report is "more bark than bite." The analysts added the report does not imply any downside to their iPhone shipment forecasts, meaning that for the moment their estimates remain unchanged on the news. Analysts at Wedbush noted that "iPhone Pro demand remains robust based on all data points we see across the U.S. and China … [meaning] much higher [average selling prices] and a clear tailwind for Apple into FY23 at this pace." KeyBanc analysts acknowledged the negative near-term consequences this headline could have on the stock but "would take advantage by buying on the pullback." Moreover, the analysts called out that all the Bloomberg report really points to is the failure for a higher level of demand to materialize, meaning that there has likely been no change to consensus expectations. At Evercore ISI, the analysts went so far as to question if the report is "fake news," adding, in line with our own view, that Apple supply chain articles should always be taken with a grain of salt. Apple is more likely trying to shift production toward the high-end models to support outsized demand, the analysts wrote. The Club's take In the end, we continue to believe that selling Apple based on unconfirmed supplier updates is ill advised, as the reports have co