The Wall Street Journal, citing sources close to Apple, reported that Apple cut orders for iPhone 5 parts following weaker-than-projected demand. But a bevy of analysts have chimed in since Sunday’s report, suggesting that inventory stockpiling, an aggressive international iPhone rollout and perhaps even the beginning stages of iPhone 5S production could be behind the drop in component orders.
Even so, the Cupertino company’s stock slid 3 percent on Monday following the somewhat shocking report, which came a little more than a week before Apple’s next earnings announcement.
Apple does appear to be cutting iPhone 5 parts orders, though. Vinita Jakhanwal, director of mobile and emerging displays at IHS, told Techsigh he’s seeing reduced iPhone display shipment numbers in this quarter compared to last quarter, in the range of 10 to 11 million compared to 19 million. Paul Semenza of NPD echoed those numbers in a report by the The New York Times. NPD DisplaySearch expected Apple to order 19 million iPhone 5 displays, but the order looks to be in the range of 11 to 14 million.
Jakhanwal says the discrepancy could be explained by seasonality — first-quarter numbers usually are smaller than fourth-quarter numbers — and also could be attributed to other components holding up iPhone production.
“The reduction in display orders could be to align to shipment of other components like the battery, which is challenging to manufacture for the new phone and may not have been able to ramp up to the display numbers,” Jakhanwal told Techsigh via email.
Jefferies analyst Peter Misek posits that Apple could be starting production on its next handset, perhaps the iPhone 5S or a budget iPhone. This could be one cause for the drop in parts orders, as could an “assembly bottleneck” that led to component inventories being stockpiled over the holidays. Semenza and Jakhanwal also believe excess inventory could be a reason for the cut. Mark Moskowitz of J.P. Morgan thinks the order cuts could also be due to improved manufacturing yields, and Apple was simply backtracking on “excess orders” of some parts.
Apple’s super aggressive iPhone roll out, which reached 100 countries by the end of 2012, could also be a reason why demand is slowing a little sooner than normal.
Still, there are certainly signs the iPhone 5 may not be selling as briskly as its predecessors. For instance, a selection of major retailers recently cut the price of the iPhone 5 by $50, and analysts like Pacific Crest’s Andy Hargreaves have told investors iPhone demand isn’t as strong as anticipated. Anecdotally, a lot of people I talk to are still holding onto their 4′s and 4S’s — they’re still good phones, run iOS 6, and breaking that carrier contract to fork over a couple hundred more for a new phone just isn’t worth it to some.
On top of that, Samsung, with its Galaxy S III smartphone, has emerged as a major competitor to Apple.
“The competitive landscape is quite different this year than with iPhone launches years before,” Canalys analyst Chris Jones told Techsigh. Some people are also leaving Apple’s 6 year old mobile operating system in favor of something different, and options like Samsung and even Windows Phone are looking fresh.
In Apple’s last quarterly earnings call, which included the iPhone 5′s first week on sale, CEO Tim Cook announced the company sold a whopping 26.9 million iPhones — 58 percent more than the same period the year prior. While numbers for the holiday quarter aren’t in yet (that will be announced next week), last year Apple sold over 37 million iPhones over that period.
