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Which Apple Inc. (AAPL) Supply Chain Rumor Should You Believe? – Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (TSM)

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The battleground stock that is Apple Inc. (NASDAQ:AAPL) continues to see investors focus heavily on supply chain rumblings from the other side of the world. Shares were weak today, down over 1% this morning, in part due to bearish sentiment among analysts. On the other hand, there’s also some data that could potentially be good news for the iPhone maker.

Which supply chain rumors should investors believe?

Apple Inc. (NASDAQ:AAPL)

The bad news
Topeka Capital analyst Brian White, who has the Street high price target of $888, says that things aren’t so great within Apple’s supply chain. White is the analyst that has compiled a group of Apple suppliers and bundled them into what he refers to as the “Apple Monitor.” The goal is to gain insight into Apple’s pipeline by looking at sales activity of suppliers.

White’s data shows that the Apple Inc. (NASDAQ:AAPL) Monitor saw February sales drop by a whopping 31% sequentially from January, far worse than the average 8% decline due to normal seasonality. That figure is the worst performance that the analyst has on record.

CLSA analyst Avi Silver has now downgraded his rating on Apple Inc. (NASDAQ:AAPL) from “outperform” to “buy” while reducing his price target from $575 to $505, citing lower iPhone unit estimates in the June quarter. This expectation is partially based on a rumored iPhone launch during the summer, in which case sales may decline ahead of new models as consumers are now well attuned to Apple’s rumored product cycles. Silver also sees an upcoming “iPhone Mini” having a negative effect on product mix and margins.

Baird Capital analyst William Power is on record saying the firm’s semiconductor team expects iPhone 5 and iPad shipments to come in below consensus estimates. With the Mobile World Congress wrapping up last week, consumers and investors have gotten a glimpse of the competitive landscape and Power has concerns over Apple’s product demand following the trade show. The analyst is sticking with his $465 price target, which represents modest upside from current prices.

The good news
Reuters is now reporting that both Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) and Hon Hai (Foxconn’s parent company) are each planning on adding 5,000 workers to their ranks. Both companies are looking to recruit students that are preparing to graduate from Taiwan University this year.

The reported job additions are notable for several reasons. First off, Apple shares fell 2% last month on reports that Foxconn was instituting a hiring freeze. Part of the pessimism was since the Financial Times speculated it was due to “weakening demand.” It didn’t matter much that other analysts actually thought the hiring freeze was due to improved working conditions and better wages, leading to higher employee retention.

Regardless, reports that Hon Hai is now ramping up recruiting could signal that it needs more employees to ramp up production of upcoming Apple Inc. (NASDAQ:AAPL) devices. Apple is hardly Hon Hai’s only customer, but it is easily the company’s biggest.

To date, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) and Apple have had no publicly direct business relationship. Speculation has persisted for years that the two companies would inevitably ink a partnership as Apple tries to reduce its reliance on Samsung, but nothing has materialized yet. Apple indirectly gets iDevice chips made by TSMC through other suppliers like QUALCOMM, Inc. (NASDAQ:QCOM) and Broadcom Corporation (NASDAQ:BRCM), but has never tapped the chip manufacturer directly.

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