While the world was singing Auld Lang Syne on New Year’s Eve, the Whiz Kids in Cupertino were singing a much different tune — one that was a bit sadder. It turns out that Apple Inc. (NASDAQ:AAPL) may have a huge problem on its hands. It may not be selling as many iPhones as we all think.
A new report from a credible source surfaced over the long weekend that suggests that Apple may be planning to cut production of its two flagship smartphones by double-digits during the first quarter.
Some analysts have jumped on the potential production cuts as the latest in a series of missteps for Apple and could serve as a major warning sign that its dominance in the world of tech could finally be waning. Just as other smartphone rivals and pioneers have succumbed to their success.
Or it could just be simply noise.
For investors, looking deeper into the report provides the answer.
AAPL Cuts Are Big
Nikkei Inc. may not be a household name here in the U.S., but the 140-year-old publishing firm is one of the largest business and financial publications in the world. It’s Asia’s Wall Street Journal or Financial Times — which it now owns. So it’s a real and credible news source.
The paper looked into AAPL supplier data, and what they found was a bit troubling. According to Nikkei, recent cuts in parts ordering would mean that Apple is planning on cutting its iPhone 7 and iPhone 7 Plus production by roughly 10% during the first quarter of 2017. This round of manufacturing cuts follows a 20% cut to the production of the iPhone 7 at the start of this year.
The reason for the cuts is easy to discern. AAPL simply isn’t selling as many of its flagship smartphones as it thought it would. During its last earnings report, Apple announced a 9% decline in annual revenues. This drop was the first time that AAPL saw falling sales figures in nearly 15 years. iPhones contribute more than 2/3 of Apples total revenues. So they are to blame for the drop in total sales.
Activation data from Localytics helps support lower sales and Nikkei’s estimates of the upcoming production cuts.
Analysts have postulated that the iPhone 7’s lack of innovative features and the fact that wireless carriers no longer subsidize smartphone purchases as the main reasons for the sales decline. People are holding on to their iPhones longer. There is simply aren’t as many reasons to upgrade as fast anymore.
For AAPL stock, this is a major blow. Apple thrives on continued sales of its latest products to keep its growth and profits going. So the fact that it has cut its main flagship product line is very troubling. Cue the hallucinations of Motorola RAZR’s, old Nokia Corp (ADR) (NYSE:NOK) brick phones and BlackBerry Ltd’s (NASDAQ:BBRY) dancing around Tim Cook’s head. Lower sales followed by dwindling production was precisely when those wireless stories began their decent.