In the latest batch of bad news for Apple and its suppliers, Nikkei reported late Tuesday that, for the second time in two months, the world’s formerly biggest company has cut production on its newest batch of smartphones (which it unveiled during a widely panned product launch back in September) as slowing demand for iPhones in China continues to take a toll on Apple’s sales.
The news came one week after Apple triggered a broad-based market rout complete with FX flash crashes, when it lowered its quarterly revenue guidance for the first time in 16 years.
Apple has cut its production plan for the new iPhones by roughly 10% over the next three months, in the latest sign that the US smartphone maker is expecting an even bigger slowdown than previously believed. The request was made before Apple lowered its revenue guidance.
A source cited by Nikkei said that the plan called for an overall cut in planned production volume of both old and new iPhones to about 40 million to 43 million units for the January-March quarter from an earlier projection of 47 million to 48 million units. This drop is equivalent to a yoy contraction of more than 20% from the 52.21 million units Apple sold between January and March 2018. To be sure, the size of the actual decline could diverge somewhat as deviations in inventories and demand are factored in.
Apple upset investors during its last earnings call by revealing that it would stop breaking out iPhone shipments beginning in the October-December quarter, a decision that the company tried to spin as an effort to shift the focus on its other products and software offerings.
Apple is struggling with a global smartphone market that has largely plateaued, as well as falling sales in China that many have attributed to the rise of domestic handset makers (like No. 2 global smartphone maker Huawei) and a widening boycott of US products. A BofA chart from earlier this week demonstrated the impact of this boycott by showing that Chinese consumers are staying away from US products due to the trade war (a boycott that hasn’t been reciprocated in the US).
With all of this in mind, it’s hardly surprising that Apple CEO Tim Cook tried to shift the investing public’s focus away from the iPhone and toward Apple’s sales of other products and services during an interview with CNBC, with Cook touting $100 billion in revenue not from the iPhone.
“In this last quarter, if you take everything outside of iPhone, it grew at 19 percent, 19 percent on a huge business,” Cook said.
Whether or not the market will manage to swallow this narrative will ultimately be the deciding factor behind whether Apple retakes the $1 trillion market cap threshold any time soon.
Meanwhile, maybe – just maybe – it’s time for Apple to consider cutting prices on its iPhones instead of continually increasing the ASP as the world draws closer to a recession with every passing day.
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