Overnight, Tokyo’s Nikkei newspaper reported that Apple Inc. (Nasdaq: AAPL) has been telling its suppliers to reduce iPhone component production by 20 percent in the second half of 2018. The news initially spooked the market, but analysts say it’s far too early for investors to be making assumptions about demand for the next generation of iPhones.
The Nikkei cited unnamed industry experts who said Apple is taking a “cautious” approach to iPhone production this year. Apple is expected to unveil three new iPhone models in September, and the new report suggests Apple is expecting 80 million shipments of the new models compared to the 100 million units it ordered last year.
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Apple stock traded lower by more than 1 percent Friday morning, but Bank of America analyst Wamsi Mohan says investors shouldn’t jump to conclusions based on the report. Mohan said initial media reports in 2017 suggested iPhone orders of well over 100 million units. Those estimates were then revised to about 100 million before the launch and then revised again between 60 million and 80 million after the iPhone X launch was delayed.
“Given the ultimately lower builds, we think it is inappropriate to compare iPhone order estimates this early, where the likelihood of revisions to both upside and downside remains extremely high,” Mohan says.
He says the iPhone order news is not particularly negative given that Apple has a build-up of inventory on its balance sheet for certain components, suggesting new component orders may not be a direct reflection of underlying demand. In addition, 80 million iPhone units is well above Bank of America’s estimate of 71 million new model unit sales and is higher than Apple’s new model iPhone unit sales in the second half of 2017.
Finally, Mohan says investors can’t draw conclusions about the new iPhones until they know more about pricing.
“Our recent 30,000-plus respondent survey suggests that lower pricing and screen size are the key drivers of increased adoption, and both of these factors could end up favorable in 2019,” Mohan says.
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Bank of America has a “buy” rating and $225 price target for AAPL stock.
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Apple Inc. (AAPL) Stock Dips on iPhone Supply Chain Report originally appeared on usnews.com
