Things are not looking good for Apple as it seems that they are planning to half their production target for the first three months of the year. As per the report, Nikkei on Monday stated that the production amount to be 20 million. Production goes down from selling an estimate of 40 million only.
The revelation hasn’t been good for the Smartphone giant as it has dropped their shares by 1.6% since being reported. This drop means that the shares have fallen to their lowest level in 2018 and knocked $14 billion off their market value. Not a good time for one of the most valuable companies in the world.
Suppliers Feel the Heat
It’s not only Apple that is feeling the sting as their suppliers are also being affected by this news. Foxconn, A suppliers based in Asia (also known as Hon Hai Precision Industry) also saw an 0.7% drop in their shares on Monday. Micron Technology, another supplier in the US also seems to be facing issues. Their shares also suffered a slight decline after Nikkei published the report.
Why Apple is Cutting Their Production in Half
The decision taken by Apple to half production has reasons to back it up. The anniversary iPhone hasn’t seen as much sales as expected. The weak sales of the iPhone X have left many investors on edge.
Many are curious to see the report on the first quarter results. The report will provide a more prominent picture on the financial outlook of the company. According to a Japanese newspaper, slower than expected holiday season sales have are reported in Europe, China, and The United States.
According to a UBS Analyst report, more people are looking to keep their phones for longer rather than upgrade. A survey was done to see how many people would like to upgrade their phones.
The results were eye-opening as only 37% of those who took the survey would upgrade. This was a drop from 47% from an earlier study. It was also compounded by Verizon communications statement last week. The company stated that postpaid device activations were lower than last year. This is because more people are looking to keep their phones longer rather than upgrade.
Many Wall Street Analysts expected the iPhone X to sell well as it featured the first design upgrade since the iPhone 6 in 2015. Wall Street analysts dubbed this as a “super cycle.”
Blockbuster sales go as per the expected because of the design upgrade and addition of new features. These are such as the edge to edge display and facial recognition technology for unlocking the phone.
Bad News For Apple
James Cordwell, An analyst for Atlantic Equities, said that Apple was expected to have a “super cycle” year (although it’s not shaping up to look like it). He also stated that if Apple doesn’t increase their unit growth substantially this year, there is a reason to be cautious of future iPhone cycles.
The forecast isn’t looking good for Apple as UBS Analysts expect the Smartphone giant to quickly meet and beat December expectations, but moderately disappoint in March. Several analysts (at least 3) have downgraded their rating on Apple’s stock. On top of that, they have estimated that there will be lower shipments of the iPhone X. The reasons cited are the high price of the device as well as other factors.
It’s Not All Bad for The Smartphone Giant
Not all is doom and gloom for Apple. Toni Sacconaghi, an analyst for Bernstein, has stated that he does not expect Apple’s 2018 profit to fall steeply. This attributes to changes in U.S. Tax law that will drop their rate to 18%.
Toni also did revise his full-year earnings per share estimate for the company for the year 2018. There was only a slight drop from his original estimation. The previous opinion was 11.87% while his new one is at 11.8%.
The reason he gave for this was again the changes in US Tax law. With that said, he did cut his second quarter and full year forecasts of iPhones. He initially predicted that the iPhone would surpass Wall Street expectations by 4 million units. It would sell 66 million units instead of the estimated 62 million units.
Mr. Sacconaghi has now cut this estimation on Monday to 53 million units. The full-year forecast was reduced by 11% (220 million units). Things aren’t looking great for Apple. It’s going to be interesting to see how they turn this around.