Apple to Halve iPhone X Production Target: Report

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Apple to Halve iPhone X Production Target: Report


  • Apple's shares went down 1.6 percent following the report
  • Production cut said to be prompted by slow sales in the holiday season
  • People looking to buy iPhone X dropped to from 43 to 37 percent: survey

Apple will halve its iPhone X production target for the first three months of the year to around 20 million units, Nikkei reported on Monday, sending its shares down 1.6 percent.

The report added to growing concerns about weak sales of the $999 (roughly Rs. 63,600) phone, making investors jittery about the company's financial outlook when it reports first-quarter results on Thursday.

Apple's shares fell to their lowest level in 2018, knocking off $14 billion (roughly Rs. 89,100 crores) from the company's market value. The company declined to comment.

Analyst Toni Sacconaghi of Bernstein cut both his second-quarter and full-year forecasts for iPhones but said he did not expect Apple's 2018 profit to fall steeply because of changes to US tax law that will bring the company's rate down to 18 percent.

"Apple earnings should handily beat December quarter expectations, but March guidance could moderately disappoint," UBS analysts said.

The production cut was prompted by slower-than-expected sales in the holiday shopping season in Europe, the United States and China, the Japanese newspaper reported, without citing a source.

The iPhone X was the first phone to sport a new design since the launch of the iPhone 6 in 2015 and many expected it to lead to blockbuster sales, dubbed by Wall Street analysts as a "supercycle."

"This was supposed to be the supercycle year and if Apple hasn't been able to drive substantial unit growth this year, then that makes you a little cautious on future iPhone cycles," Atlantic Equities analyst James Cordwell said.

Several analysts have lowered their estimates for iPhone X shipments in the past few weeks, citing the high price of the device and other factors, with at least three downgrading their rating on the stock.

Sacconaghi of Bernstein had originally predicted that Apple would outpace Wall Street expectations of 62 million iPhones by selling 66 million units, but on Monday he cut that figure to 53 million units, a nearly 20-percent cut. He also cut his full-year iPhone unit forecast 11 percent to 220 million units.

But he only slightly revised his full-year earnings per share estimate for 2018 to $11.80 (roughly Rs. 751) from $11.87 (roughly Rs. 756), citing the positive effects of US tax law changes.

Adding to the concerns, Verizon Communications said last week its postpaid device activations were lower than last year as people were keeping phones longer.

A survey of people planning to buy the iPhone showed that the percentage of them looking to buy the iPhone X has dropped to 37 percent from 43 percent in an earlier survey, UBS analysts wrote in a note on Monday.

The iPhone X, which features an edge-to-edge display and facial recognition technology to unlock the phone, went on sale in November in the United States.

Asian supply chain checks suggest that iPhone X orders have been weakening recently, with first-quarter production likely to be about 20 million units, JP Morgan analysts wrote in a note dated January 24.

A few of Apple's iPhone parts suppliers are based in Asia. Shares of Foxconn, one of Apple's main suppliers and formally known as Hon Hai Precision Industry, fell 0.7 percent on Monday.

Shares of US-listed Apple suppliers such as Micron Technology edged lower following Nikkei's report.

© Thomson Reuters 2018

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