Apple Selloff Overdone? Unreliable Source Might Be To Blame For iPhone Production Cut Talk

Nehal Chokshi of Maxim said the June-quarter guidance of Apple Inc. AAPL is expected to meet his estimate after his "analysis of likely source of Nikkei report regarding June quarter iPhone production cuts."

On April 15, Nikkei published a report that implied iPhone supply will trend below current expectations. The analyst said since then, Apple shares have underperformed the NASDAQ by 550bp.

The report stated Apple "will maintain the reduced output level in the June quarter."

But Chokshi said it is unclear "whether this level is with respect to the reported 30 percent y/y reduction for the March quarter in iPhone component builds will be sustained for the June quarter or flat q/q."

The analyst noted that Nikkei published a similar report on January 5, "stating that iPhone supply chain will be down 30 percent y/y in the March quarter."

However, Choksi said that Apple's March-quarter guidance implied only a 20 percent y/y drop in iPhone supply chain.

"We believe Japan Display is most likely the source for the report and also note that the cause for the company's own disappointing December quarter report and March quarter guidance turned out to be share losses within Chinese Smartphone OEMs," Chokshi elaborated.

Chokshi, who has a Buy rating on Apple, said, "Apple consensus estimates takes into account normal seasonality and currently projects a seasonal 9 percent q/q decline in revenue, whereas Japan Display guidance does not."

"Combined with what appears to be strong demand for the iPhone SE," the analyst believes that Apple's June quarter outlook would at least meet his 4 percent below consensus revenue estimate of $45.4 billion and likely the consensus estimate of $47.3 billion.

The analyst said the consistent rolling two-year share gain trajectory for Apple will become apparent with the iPhone 7 cycle and the maturation of China smartphone market, and this in turn will abate the margin compression fears and drive the stock to his price target of $162.

Shares of Apple closed Friday's trading 0.27 percent lower at $105.68.