iPhone production may be slowing down: Apple is expected to cut production of its latest models by about 30% in the January-March quarter due to mounting unsold units, it has been reported. The news disturbed investors in the US tech giant, sending share price sharply lower to close to $100, a level unseen since 2014.
Inventories of the iPhone 6s and 6s Plus have piled up since they were launched last September, and production will be scaled back to let dealers go through their current stock, the business daily Nikkei reported.
The biggest supplier to the tech behemoth, Foxconn, is also cutting working hours during China’s Lunar New Year – an unusual move for the manufacturer.
Apple has historically cut production after the launch of a new phone – the company ramps up to meet as much demand as possible during its much-publicized launch dates and trims back accordingly once those dates have passed. But 30% is a larger chunk of the business than the company has been known to cut – indeed, analysts are predicting the backstock could stay on shelves into March.
It’s a bad moment for Apple to be cutting back: a Bloomberg report parsing the share prices of Apple suppliers earlier this week found that all of them had reported declines. Given the company’s growing presence in China, it may be a sign of more trouble to come.
The cutbacks are also bad news to analysts who have pegged the tech giant as a “one-product company”. Though the company’s other devices are popular, the iPhone accounted for more than half of its sales of products and services last year – $155bn out of about $234bn total.
The report prompted a 2% drop in Apple shares, which have lost about a quarter of their value from record highs in April, reflecting worries over slowing shipments. Shares in the mainly Asian makers of iPhone screens and chips were also sharply lower on Wednesday.
“This is an eye-opening production cut which speaks to the softer demand that Apple has seen with 6s out of the gates,” FBR Capital Markets analyst Daniel Ives said. “[Wall] Street was bracing for a cut but the magnitude here is a bit more worrisome.”
Among LCD panel makers, Japan Display Inc fell 4.7% while LG Display Co Ltd fell 3.4%. Foxconn itself – the trade name of Hon Hai Precision Industry – was down 1.8% to trade around T$77.80, lows not seen in over four months.
Production is expected to return to normal in the April-June quarter, the Nikkei reported. However, Patrick Moorhead, an analyst at Moor Insights & Strategy, said he was a bit skeptical about the production cut reports. “Apple has been gaining significant market share in pretty much every region, and I’m not seeing a global slowdown,” he said.
Reports from analysts across the board – Morgan Stanley and Credit Suisse, to name two – have said that this year is not likely to be an auspicious one for iPhone sales growth. Citing smartphone oversaturation outside of China, last month Morgan Stanely analyst Katy Huberty changed her 2016 predictions for the popular devices from a 6.1% increase to a 0.6% decline.
For fiscal 2016, Apple is expected, on average, to grow revenue by under 4%, a far cry from the 28% revenue growth it achieved in the fiscal year that ended in September.
