AT&T CEO Randall Stephenson might lie awake at night worried about iMessages (and clowns), but Sterne Agee analyst Shaw Wu told clients on Tuesday that the, "iPad mini is the competition's worst nightmare." Though Apple hasn't yet announced the iPad mini, Mr. Wu said that his checks with suppliers in Asia show an uptick in component sourcing for the device.
The iPad mini Nightmare
He also said that pricing for the device will be key, noting, "We do not believe AAPL needs to price as low as US$199 to match [Google's] Nexus 7 and [Amazon's] Kindle Fire HD but believe a price point of $299 or $349 makes sense with its entry-level iPod touch starting at $199 and iPad 2 at $399."
In May, we made the case that $299 was a great price point for the iPad mini, though that was before the release of Google's Nexus 7, a development that could have an impact on Apple's pricing strategy.
The analyst cautioned that consensus estimates for Apple's iPad for the now-completed September quarter could be high at 17-18 million units. His own estimates are for 16.5 million iPads. For the December quarter, he is estimating 22.3 million units. Those estimates do not include iPad mini estimates because the device has not yet been announced.
Mr. Wu wrote the research note in part because his clients have been asking about the recent pullback on Apple's stock. Shares of AAPL are down roughly 9.4 percent since hitting an all-time closing high of $702.10 on September 19th, and more than 9.8 percent off the stock's intraday high of $705.07 on September 21st.
"We believe concerns are overdone and this appears to be a typical consolidation after a big run," the analyst wrote about the pullback. "From our supply chain checks, demand remains robust with improving production and the bottleneck moving to assembly of the iPhone 5 itself vs. component constraints. In addition, we are picking up much increased component activity with what appears to be for an iPad mini."
He also noted that iPhone 5 production has improved, and that the bottleneck has moved from component supply to final assembly. He said that, "it Is overwhelming demand that is causing lead times to remain at 3-4 weeks and low stock at the retail level despite increased production."
AAPL ended Tuesday lower at $635.85, down $2.32 (-0.36 percent), on heavy volume of 29.9 million shares trading hands.
Image made with help from Shutterstock.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.