iPhone Production Cuts Test Apple StockiPhone Production Cuts Test Apple Stock
Is the era of blockbuster iPhone sales coming to an end? When reports indicated Apple was cutting production of its flagship device, its stock took a hit.
January 7, 2016
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It's still the most valuable company in the world, but global market jitters struck tech giant Apple this week following a report in The Wall Street Journal that claimed the company was cutting down on production of its flagship product, the iPhone.
A slowdown in production of the device, which represents around 60% of Apple's yearly revenue, was first reported by Japanese news service Nikkei.
That report cited parts suppliers that said iPhone output would fall by nearly a third in comparison with Apple's earlier plans, which stoked investor fears that demand for the smartphone may be slowing.
Apple shares are currently down more than 15% over the past month, -- the company's stock price stood at $100.70 a share at the opening of the market on Thursday, Jan. 7, although it dipped in early trading -- while the Chinese government is reportedly providing a $12 million subsidy to Foxconn (formally known as Hon Hai Precision Industry), the iPhone's manufacturer, to help reduce layoffs at its factory.
"The incentives were provided to Foxconn in recognition of our company’s contributions to maintaining our significant work force at our Zhengzhou facility throughout that year," the paper quoted the company as saying.
Meanwhile, The Journal also quoted three unnamed sources familiar with Apple's supply chain that said the company had been reducing order forecasts for component suppliers over the past few months.
"We were already conservative about the first quarter," analyst Kylie Huang at Daiwa-Cathay Capital Markets in Taipei, responding to Foxconn's layoff plans, told Reuters for a Jan. 6 article. "It's not just iPhone slowdown, but all of the Chinese economy."
While Apple had a lucrative holiday season any dip in iPhone sales spells trouble for the company. The company's products accounted for 49.1% of new devices given during the holiday, and customers spent over $1.1 billion on apps and in-app purchases, setting back-to-back weekly records for traffic and purchases.
While smartphone unit shipments are projected to reach 183 million this year -- up 5% from 2015 -- and smartphone revenues are expected reach $55 billion in 2016 -- a 4% increase from last year -- much of that growth will come from low-cost handsets targeted at emerging markets, according to a report released Jan. 4 from the Consumer Technology Association (CTA) right before the start of the 2016 CES expo.
Budget smartphones now offer many of the same advanced features as the iPhone -- though perhaps lack a bit in design panache. That fact indicates it might take a major technological breakthrough from Apple in order to maintain sales momentum.
[Check out these smartwatches spotted at CES.]
So far, the latest reports concerning the iPhone 7, which won't even make its debut until the fall, suggest its new features, like a thinner headphone jack, are likely to annoy as many customers as it will attract.
It's a little soon to count Apple's flagship device down and out yet, however. With a record-breaking 13 million iPhone 6s and 6s Plus units shipped during launch week, Apple's newest iPhones helped drive third quarter shipments of 48 million units, up 22.2% from 39.3 million units last year.
Along with the media frenzy and fanfare that helped push new iPhone sales through the roof, older iPhone 5s, iPhone 6, and iPhone 6 Plus models also sold vigorously during the quarter due to recent price cuts across all models.
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