Most notable was Apple’s hit, dropping the company’s share price under $400 for a brief moment — the lowest point since December of 2011 — before rising and hovering just above the $400 mark. Apple’s dive came after multiple negative reports for the company, including a Digitimes report claiming iPad mini shipments could tumble in the June quarter due to lack of demand.

Apple is expected to miss its estimates in its upcoming quarterly earnings report, come April 23.

Cirrus Logic, one of Apple’s components suppliers, noted on Wednesday that it will record a net inventory reserve of $23.3 million for the fourth quarter, citing lower volume of one of the company’s top product shipments as an unnamed customer transitions from one component to another in its products. Investors pounded its stock, sending shares down almost 14 percent.

Apple wasn’t alone in its dip downward on Wednesday afternoon. Shares of Facebook were trading off almost 1.5 percent at around $26.50, while the usually well-performing LinkedIn was down as much as four points at $178, a 2.5 percent drop, before regaining some ground.

Google was also trading down around 1.5 percent this afternoon, following recent news that software giant Microsoft had reached a licensing agreement with Foxconn parent company Hon Hai, which from now on will pay royalties on every Android and Chrome device manufactured by one of its companies.

The Dow was off about 1 percent overall on Wednesday afternoon.

Hewlett-Packard, the world’s leading PC manufacturer, fell by more than 2 percent in the wake of a disappointing earnings report from chipmaker Intel. Cisco Systems fell nearly 2 percent. Chipmaker Advanced Micro Devices fell by more than 1.6 percent. Salesforce.com fell by more than 1 percent.

Google took a hit of more that 1.5 percent this morning, dropping more than $12 to trade at close to $780 per share.

“We are pleased that the list of companies benefitting from Microsoft’s Android licensing program now includes the world’s largest contract manufacturer, Hon Hai,” Horacio Gutierrez, corporate VP and deputy general counsel of the IP group at Microsoft, said in a statement.

The agreement between Microsoft and Hon Hai effectively means that any Android or Chrome devices — such as handsets or notebooks — created by manufacturers in the Hon Hai group will require royalty payments to Microsoft.

“We recognize and respect the importance of international efforts that seek to protect intellectual property,” Samuel Fu, director of the Intellectual Property Department at Hon Hai, said in a statement. “The licensing agreement with Microsoft represents those efforts and our continued support of international trade agreements that facilitate implementation of effective patent protection.”

Google has long fought Microsoft’s claims that parts of the Android and Chrome software infringe on Microsoft’s vast collection of intellectual property holdings.

But a number of other hardware manufacturers — like HTC, Samsung, LG and more — have already signed licensing agreements with Microsoft to pay royalty fees for each Android or Chrome device manufactured.

Reporting first-quarter earnings, Hon Hai said revenue fell 19.2 percent from the year prior, to NT$809 billion. That’s well below the NT$895 billion analysts were expecting, and the largest drop in revenue the company has suffered since 2000.

The reason for the precipitous decline? Hon Hai won’t say. But it’s likely to have something to do with Apple. Between 60 percent and 70 percent of Hon Hai’s revenue is believed to stem from the company’s partnership with Apple. So when it posts ugly earnings like these, the quick and easy explanation for them is a slowing in demand for the iPhones and iPads it manufactures. As KGI Securities analyst Ming-chi Kuo told Reuters today, “This shows that Hon Hai’s revenue depends too much on Apple, and iPhone orders corrected more than expected.”

That may be true. But it’s important to remember that Hon Hai’s customer list stretches well beyond Apple, and boasts a number of big names, Hewlett-Packard, Dell, Nokia and Nintendo among them. Given the decline in the PC market, and continuing struggles at Dell, Nintendo and Nokia, it’s entirely possible that there are some other factors at work here, as well.

But that’s just speculation until Apple next reports earnings on April 23.

Hon Hai and Apple both declined comment.

IBM said today that it was granted 6,478 patents in 2012, which is also a record. The company has about 8,000 researchers and inventors working in 46 states in the U.S. and 35 countries around the world. The full tally of patents over 20 years amounts to nearly 67,000.

The next nine companies in the Top 10 list of patent recipients are:

• Samsung, which received 5,081 patents
• Canon: 3,174
• Sony: 3,032
• Panasonic: 2,769
• Microsoft: 2,613
• Toshiba: 2,447
• Hon Hai : 2,013
• General Electric: 1,652
• LG Electronics: 1,624

So what does IBM do that other companies don’t? I had a quick conversation with Katherine Frase, IBM’s VP for Industry Solutions and Emerging Business. “The process of getting to so many patents means that inside the company there’s a mindset that’s geared toward writing down what you do when do something that’s original and that has business value. There’s a tangible focus on writing things down. And you’ll write down five to 10 times the number of things that actually pass muster toward getting a patent. But that process keeps the notion of innovation at the front of your mind, not at the back of the mind,” she says. “It shows up in patents, and that’s an indicator, but the cultural assumption that innovation isn’t an accident but is made up of lots of little things that you remembered to capture along the way is more important than the patents themselves.”

So, what sorts of things did IBM receive patents for in 2012? Here’s a sampling:

U.S. Patent #8,275,803: System and method for providing answers to questions. Remember Watson? The talking supercomputer that cleaned humanity’s clock on the TV game show “Jeopardy,” and then followed it up by going to medical school and becoming a big-shot doctor working on treating cancer? This would be the patent on how Watson takes in questions expressed in natural language and returns an answer.

U.S. Patent #8,250,010: Electronic learning synapse with spike-timing dependent plasticity using unipolar memory-switching elements. If Watson weren’t enough for you at mimicking and improving upon humanity, IBM is working on something even more complex: Systems of Neuromorphic Adaptive Plastic Scalable Electronics, or SyNAPSE. It’s a project focused on cognitive computing aimed at emulating the workings of the human brain.

U.S. Patent #8,185,480: System and method for optimizing pattern recognition of non-Gaussian parameters. I don’t have the slightest idea what a non-Gaussian parameter is, so I’m not going to even try to explain this one, beyond saying that it has to do with recognizing patterns in data as the volume of information grows. One example IBM gives is traffic data: If you’re measuring traffic patterns, every day you get more data, and thus the patterns change and evolve, or existing ones become more pronounced and predictable.

There are 6,475 more or these patents from 2012 and, no, I won’t even try to list any more. Here’s a short video that IBM produced on the subject:

Hon Hai in March said it would change its workplace practices after an audit by a U.S.-based nonprofit worker-safety group found widespread breaches of Chinese law and Apple policies at three plants, including the excessive use of overtime. Hon Hai responded by pledging that it would bring its overtime policies into alignment with Chinese law by next year, allowing workers to work no more than nine hours of overtime a week. The Taiwan-based company, also known as Foxconn, pledged to improve health and safety conditions at its campuses across China as well.

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Officials at some of Apple’s suppliers, who declined to be named, said the Cupertino, Calif.-based company has been working on testing a few designs for a large-screen high-resolution TV.

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So what’s causing the supply shortage? Here is Hon Hai Precision Industry Co.’s take. The company, based in Taiwan with factories across China, uses the trade name Foxconn Technology Group, and assembles many Apple products including the new iPhone.

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The consequences of a riot that erupted on Sunday in the Hon Hai Precision Industry Co.’s plant go far beyond the security of Apple’s supply chain, which relies on armies of industrious and docile Chinese workers.

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Hon Hai, which makes Apple’s iPhones and iPads under contract, has been facing pressure to improve wages and working conditions since several employee suicides at its facility in Shenzen in 2010 and an explosion in Chengdu in 2011 that killed four workers. Following the incidents, Hon Hai, also known as Foxconn, increased salaries in China and outfitted worker dormitories with safety nets.

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Apple and one of its top suppliers, Hon Hai Precision Industry Co., agreed to a set of recommendations by the Fair Labor Association following an audit of Hon Hai’s Chinese factories to reduce work hours and change other employment policies.

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Sharp will issue new shares worth ¥66.91 billion ($808 million) to Hon Hai Precision Industry Co. and its group companies in the biggest investment ever in a Japanese company by a Taiwanese one. Hon Hai, the world’s largest contract maker by revenue of electronic products, will also take half of Sharp’s 92.96 percent stake in its LCD panel factory in Sakai, western Japan.

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Hon Hai has a workforce of over one million worldwide, and as human beings are also animals, to manage one million animals gives me a headache.

– Hon Hai chairman Terry Gou, who went on to say that he wants to learn from the director of Taipei Zoo regarding how animals should be managed

The U.S. software giant said in a statement that a protest erupted earlier this month over “staffing assignments and transfer policies, not working conditions” at the Wuhan facility, where Foxconn reportedly manufactures the Xbox game console. Redmond, Wash.-based Microsoft said workers at the plant manufacture hardware products but didn’t specify which ones.

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Foxconn is working with the Chinese city of Zhengzhou to double the size of the workforce at its facility there, recruiting an additional 100,000 employees — the same number it hired in 2011. Valued at about $1.1 billion, the expansion would make the factory the largest smartphone production facility in the world.

That should make for a massive increase in production, once hiring is complete. Foxconn’s Zhengzhou plant currently cranks out about 200,000 iPhones per day, according to reports. So a doubling of its workforce would presumably also increase that number by a factor of two.

Shares in the company, which have been charting new all-time highs recently, fell $8.21, or 2 percent, to $396.09 in early trading following the report, which claimed supply chain vendors indicate a 25 percent cut for fourth-quarter iPad sell-in orders.

A nasty bloodletting, and unmerited according to a few other analysts. Piper Jaffray’s Gene Munster, for example, dismissed J.P. Morgan’s report as a misinterpretation of supply chain noise.

“Following our recent trip to Asia we remain confident in our iPad estimates for the September and December quarters of 10.0m and 12.0m, respectively,” he said in a note to clients. “While we heard chatter of supply chain order reductions, the absolute sell-in figures for 2H CY11 likely remain well above our estimates. We also note that previous calls based on sell-in or supply chain data have, for the most part, proven to have very little correlation with Apple’s results vs. consensus.”

Susquehanna chip analyst Chris Caso also raised an eyebrow over J.P. Morgan’s claims, arguing that what we’re seeing is a scheduling adjustment, not a cut.

“We believe chatter regarding iPad production cuts are misleading — we have seen pull-ins, not cuts,” Caso said. “We have noted recent comments by competitors discussing iPad production cuts for 4Q. Our recently published AAPL supply-chain checks noted a sequential decline in 4Q iPad builds from 17 mln-19 mln units in 3Q to 11 mln-13 mln units in 4Q. However, the 4Q sequential decline was accompanied by an increase in 3Q builds, leading us to conclude that production was likely pulled-in from 4Q to 3Q. We believe AAPL has attempted to accelerate production in 3Q to ensure product availability for the holidays. In addition, we expect AAPL will need to modulate production of iPad2 to prepare for iPad 3.”

In other words, don’t pay too much attention to supply chain noise. J.P. Morgan’s Apple analyst Moskowitz isn’t. He hasn’t changed his iPad numbers and, according to the note that inspired today’s sell-off, “does not expect the supply chain adjustments to result in downside to his estimates.”

UPDATE: Later Monday afternoon J.P. Morgan issued a second research note on rumored iPad production cuts, this one written by Moskowitz. Its gist: Apple is fine.

“A recent alert on Hon Hai Precision from our J.P. Morgan Asia colleague Gokul Hariharan has the equity markets worried about Apple,” Moskowitz wrote. “Mr. Hariharan’s report focuses on how Hon Hai could be impacted by potential iPad sell-in order cuts. This alert is not the view of the US IT Hardware team. As referenced at the end of the Hon Hai alert, our estimates for Apple remain unchanged, and we do not expect any downside risk.”

The Shenzhen Bao’an People’s Court, in announcing its decision, said the head of a Chinese electronics-accessories manufacturer allegedly paid a former employee and a then-active employee of Taiwan’s Hon Hai Precision Industry Co. for information about the iPad 2 in order to produce protective cases for the device. Hon Hai, known by its trade name Foxconn, makes the iPad 2 and other gadgets for Apple in its factories in China.

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The reason’s simple, says Hon Hai Chairman Terry Gou: The iPad is really hard to make.

“It’s very difficult to make Apple’s new products and while our cooperation with Apple has given us many opportunities, it has also posed many challenges,” Gou said during a company shareholder conference today. “But we’re confident in our manufacturing because our defect rate of some super-thin products, including handsets and touch models, is under 5 percent, which is better than our rival, Samsung Electronics.”

But evidently not good enough to keep the company’s financials where investors would like them. Between 2005 and 2010, Hon Hai’s operating margin fell to 2.87 percent from 5.43 percent. Gou is working actively to change this, but obviously it’s slow going.

[Image credit: iFixit]

“While the investigation into the tragic explosion that took place at our facility in Chengdu is ongoing, we have addressed the preliminary finding, that the accident was likely due to an explosion of aluminum dust in a ventilation duct, by putting in place improvements in workshop ventilation, a total revamping of the policies and practices related to the disposal of that dust, and through the application of new technologies that will further enhance the safety in these workshops,” a Foxconn representative said in a statement to AllThingsD.

Foxconn has reopened the plant, which is believed to manufacture the iPad.

Here is their full statement:

Following the tragic explosion in one of the polishing workshops in our Chengdu campus on Friday, May 20, we carried out a detailed and thorough review of all related safety policies and procedures in the polishing workshops of all other Foxconn operations. While the investigation into the tragic explosion that took place at our facility in Chengdu is ongoing, we have addressed the preliminary finding, that the accident was likely due to an explosion of aluminum dust in a ventilation duct, by putting in place improvements in workshop ventilation, a total revamping of the policies and practices related to the disposal of that dust, and through the application of new technologies that will further enhance the safety in these workshops.

Our review and assessment in determining the enhancements covered the areas from the actual polishing work that is done by high-tech robots to the disposal of the aluminum dust that is a by-product of that process. The new measures we are employing in our workshops, which have resumed operation following the review referred to above, are a direct response to our efforts to ensure that we are applying the highest possible safety practices. Should the investigation identify any additional areas where enhancements could be made, we will not hesitate to immediately implement those measures.

“While the investigation into the tragic explosion that took place at our facility in Chengdu is ongoing, we have addressed the preliminary finding, that the accident was likely due to an explosion of aluminum dust in a ventilation duct, by putting in place improvements in workshop ventilation, a total revamping of the policies and practices related to the disposal of that dust, and through the application of new technologies that will further enhance the safety in these workshops,” the company said in a statement (full text here). “The new measures we are employing in our workshops, which have resumed operation following the review referred to above, are a direct response to our efforts to ensure that we are applying the highest possible safety practices. Should the investigation identify any additional areas where enhancements could be made, we will not hesitate to immediately implement those measures.”

The plant’s reopening should allay further concerns about shortfalls in iPad production capacity, though as Ticonderoga Securities analyst Brian White notes in a message to clients this morning, this doesn’t mean that Apple’s out of the woods yet.

“…Our meetings today indicate that the Chengdu facility has been held back by yield issues on certain outside components; thus, the operation may not have reached the optimal utilization rate,” White explains. “Therefore, the explosion in Chengdu may result in more of an equilibrium situation with certain component vendors, rather than a shortage situation. Netting this all out, we believe the production of iPad 2 will be supply constrained during the June quarter; however, we are not prepared to place the bulk of the blame on the Chengdu operation.”

“Our current view is that this tragedy is likely to have some impact on iPad 2 production; however, we believe [Foxconn] has the flexibility to shift manufacturing back to the Shenzhen facility if necessary,” Ticonderoga analyst Brian White said in a note to clients. “As such, we currently don’t expect a material impact to Apple’s iPad 2 shipments.”

Stern Agee analyst Shaw Wu echoed White’s take in a note of his own, dismissing concerns that the blast will materially impact iPad production as overdone. “From our checks with industry and supply chain sources, there are at least two facilities that produce iPads (the other being Shenzhen) with plans to add more,” he wrote. “Our sources indicate that production is being ramped at Shenzhen to make up for a potential shortfall at its Chengdu plant.”

Meanwhile, iPad ship times continue to hold steady at 1-2 weeks, the same shipping window they had before the explosion.

[Image credit: Kominyetska/Flickr]

PREVIOUSLY

• Third Foxconn Worker Dies Due to Explosion, Apparently Caused by “Combustible Dust”
• Apple Says Working With Foxconn to Explore Cause of China Explosion

Gauna cut his fiscal Q2 estimate–that’s the March quarter–from $23 billion to $22 billion, in line with Apple’s forecast, while the Street consensus is still at $23 billion. His EPS estimate drops from $5.49 to $5.10.

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If such a deal happens, it would get Qualcomm, whose business is tied most closely to the wireless handset business, into the business of supplying chips for Wi-Fi and other wireless networking technologies like GPS, Bluetooth and Ethernet. Atheros’s Align product is a set of chips for 802.11n Wi-Fi networking. According to its 10K report, 43 percent of its fiscal 2009 sales were from its networking segment, which went into wireless routers and Ethernet switches, while 37 percent of sales went into notebook PCs, and 20 percent into consumer devices like game systems, navigation devices and Blu-ray players. These are all markets that Qualcomm has had trouble penetrating.

Atheros says its biggest customers are Hon Hai Precision Industry, the Chinese company that owns the manufacturing behemoth Foxconn, and Nintendo, though that only paints a partial picture.

Update: I asked market research firm iSuppli to look through its database of product teardowns to see where Atheros’s chips have shown up in the past, and the list is extensive. Atheros networking chips show up in numerous notebooks, including Hewlett-Packard’s, Toshiba’s, Acer’s, Asus’s, and Apple’s iMac. They’ve also been seen in several handheld products, including Amazon’s third-generation Kindle, Samsung’s Galaxy S, Sony Ericsson’s Xperia X10, the Nintendo DSi, and Microsoft’s Zune HD. Networking customers include Netgear, 2Wire and Huawei. At least now it’s pretty clear why Qualcomm might be interested.

Sales in 2009 were $522 million, and the average forecast by analysts calls for it to report sales of $922 million for the year ended Dec. 31. Atheros shares naturally shot up by a whopping 19 percent on word of a potential deal. At $44 a share, the stock is now trading at nearly double its 52-week low.

A deal for Atheros would also get Qualcomm’s year off to a potentially positive start following the demise of its FloTV business, though there are also several potential developments in the offing for Qualcomm, including augmented reality and a possible design win in Apple’s iPhone 5. Qualcomm investors appeared to like the notion of a combination with Atheros, too, and sent its shares up by 1.5 percent.

Meanwhile, here’s Walt Mossberg’s interview with Qualcomm CEO Paul Jacobs at last year’s D8.