Wedge Partners puts out cautionary note that iPad sales may not be as strong as expected

Wedge Partners‘s Brian Blair this morning offers a cautious view of Apple (AAPL) shares, urging investors to avoid the stock for the moment, even though AAPL is “the best name in tech” because of the expected growth in iPhone and iPad sales.

He is “concerned iPad sales may not be as strong as expectations,” and that Apple’s March fiscal Q2 results may therefore disappoint expectations.

Basically, since Q1 earnings, AAPL has been on a tear, breaking out from its usual pattern of pulling back and entering a period of consolidation (during some quarters, it was overdone though resulting in P/E compression).  This time around, the spring snapped from multiple compression, leaving behind several gaps which have yet to be filled.  I have a difficult time now seeing the $430-470 gap being filled in the absence of any major bad news (like actual lower than expected sales and/or external macroeconomic factors).  However, I do expect some form of correction (around 7%)  to take place from the all time high.  I view such a correction as healthy at this juncture anyway.

As far as this cautionary note goes though, me thinks the shorter (1-2 week) shipping times is due to manufacturing being able to supply more units to meet the demand compared to last years constrained supply of the iPad 2 at its launch.  I believe the emphasis after that experience was to increase the efficiency of the overall supply chain for this iPad.  With the ops guy (Cook) now firmly in charge, I expect to see even greater gains in this area such that the wait times are much less.  Even the Chinese gray market has noticed this change where resellers have found it difficult to make a profit because Apple for the most part, has been able to meet a larger amount of the initial demand at launch.

Blair mentioned they expected Apple to sell around 9-10 million units (what he called a lofty number).  Apple on the first weekend said they sold 3 million; a third of Wedge Partner’s lofty estimate of 9-10 million units for the March quarter on just one weekend.  I personally have a hard time seeing that initial strong demand suddenly tapering off for the next 2.75 months.  The Retina Display is a huge draw (once you use one, and then go back to an older iOS device without a Retina Display, the experience is jarring) as are the other internal enhancements; especially for 1st generation iPad owners (15 million were sold by the time the iPad 2 launched) who may have opted to skip the iPad 2.  As of December 2011, Apple sold around 55 million units total (iPad + iPad 2).  We’re only just heading into the 3rd year of this product category.  I’d be surprised if actual units sold this quarter are below analysts expectations

Of course, there are no guarantees either that Apple will sell that many units.  Maybe people were scared off by the whole heat (non)issue.  Or maybe a large number of customers will be taking advantage of Apple’s offer of a refund due to the advertising claims about 4G LTE which is relevant only in the US and Canadian.  In brief, LTE (Long-term Evolution) operates across different bands in various parts of the world – there currently is no radio chipset which handles all these different bands – which is why Apple has to release two separate models in the US for AT&T and Verizon.

While Apple does make note on their site in fineprint that the device supports 4G LTE only in the US and Canada, some countries do take a more hardline stance on the overall wording of advertisements in order to protect consumers.  Personally, I doubt this will have any major impact on sales.  The new iPad (WiFi + 4G) will still be able to connect to high speed 3G cellular networks in those areas where it isn’t compatible with 4G LTE.  I guess this is just one of those pieces of news which we”ll need to wait and see.