FORTUNE — With Apple (AAPL) trading below $640, many of the several dozen analysts who follow the stock — and who have issued a median price target of $780, according to Thomson/First Call — are getting anxious calls from clients asking what the hell is going on?
On Tuesday, Sterne Agee’s Shaw Wu (price target: $840) sent a note to his subscribers aimed at smoothing some ruffled feathers.
His answer (I quote):
- From our latest supply chain work, we have not picked up a drop-off in demand and production appears to be improving with the bottleneck moving from components (like the in-cell touchscreen) to the assembly of the iPhone 5 itself.
- Our sources indicate that iPhone 5 is not easy to build with AAPL’s very high standards where it aims to produce each model to be an exact replica where variance is measured in microns.
- From our understanding, 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.
- In addition, we are picking up much increased component sourcing activity for what appears to be for a smaller form factor iPad.
- We continue to believe iPad mini is the competition’s worst nightmare, but believe attractive price points will be key.
- We do not believe AAPL needs to price as low as $199 to match GOOG’s Nexus 7 and AMZN’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 sum,” he concludes, “we believe concerns are overdone and this appears to be a typical consolidation after a big run.”
Wu expects Apple to report sales of 27 million iPhones in the quarter that ended Sept. 29 and is looking for the company to sell 46.5 million more in the December quarter.