While the company is working hard to diversify its revenue, at this point iPhone sales remain the key driver of AAPL stock. So news that Apple Inc. (NASDAQ:AAPL) has reportedly told suppliers it is expecting to sell fewer units for this year’s new iPhone launch –not more– had the effect that you would expect. This morning, AAPL stock is down about 2%.
Report: Apple Cutting Orders for 2018 iPhones by 20%
Last year, Apple was anticipating an upgrade mega-cycle. The iPhone 8 and iPhone 8 Plus would be joined by the ultra-premium iPhone X, a new flagship smartphone with an OLED display. The company ordered 100 million new iPhones to meet the expected demand.
The rush for new iPhones didn’t materialize as expected, and AAPL stock took hits each time the company was reported to be reducing orders for iPhone X production.
For 2018, Apple seemed determined to shoot for the massive iPhone upgrade cycle that sputtered in 2017. With three new iPhones likely, including a super-sized iPhone X Plus — and rumors the company would cut prices and walk the second generation iPhone X back from the $999 starting price that seemed to have scared off so many consumers — the possibility of a return to record shattering launch numbers seemed plausible.
However, the Nikkei Asian Review is reporting today that Apple is approaching the 2018 iPhone launch much more cautiously, planning on production of just 80 million units for the new smartphones. The industry media outlet based that claim on information received from four sources within the AAPL supply chain, but notes Apple itself refused to comment.
In response to the reported 20% cut in planned production, Apple stock slid as much as 2.25% in pre-market trading.
Not Great News for AAPL Stock, But the Company Is Being Cautious
The potential is certainly there for Apple to make a splash with its 2018 iPhones. But the 2018 launch takes place amid the backdrop of a global smartphone market that is clearly losing steam. In Q4 2017, that smartphone market contracted for the first time ever.
Adding to the loss of momentum, Apple stumbled with the iPhone X launch. The company went with a staggered launch strategy, with the iPhone 8 and iPhone 8 Plus available more than a month before the flagship iPhone X. And then there were manufacturing challenges with the iPhone X that were suspected to have limited the quantities available for that critical initial sales period.
According to Nikkei Asian Review, Apple’s more cautious approach for 2018 doesn’t just mean reducing the total number of new iPhones it produces.
AAPL is reportedly working with suppliers to ramp up production on the new OLED iPhone X models earlier, ensuring that it has a sufficient quantity on hand to meet initial demand. Those supply chain sources also claim Apple is avoiding the staggered release strategy of 2017, instead making all of its new 2018 iPhones available at the same time.
The Bottom Line for AAPL Stock
While the news has resulted in AAPL stock taking a hit, Apple’s approach may actual prove advantageous to investors in the long run.
After the iPhone X orders were cut, Apple stock was punished. If the 80 million iPhones ordered for 2018 prove to be sufficient to meet demand, much of the pain has already been dealt with in these initial reports.
And if 80 million turns out to be insufficient to meet demand, Apple would still have enough stock on hand to satisfy the initial rush (and to rack up record launch numbers), while subsequent orders to ramp up production would likely boost AAPL stock –the opposite effect of what we’ve seen with the iPhone X launch.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.