Some analysts doubt suggestions of weakening demand for the iPhone 5, saying there could be many other explanations. Photograph: The Asahi Shimbun via Getty Images
Apple's shares dipped below $500 on Monday as Wall Street took fright over reports that it had cut orders for parts from screen suppliers for its iPhone 5 ? but others said the reaction was overdone.
The Nikkei newspaper in Japan reported on Monday that Apple has cut orders for the LCD screens used in the iPhone 5, launched last September, and suggested that it indicates weakening demand for the phone. A number of analysts downgraded their estimates for the number of iPhones sold, which Apple is due to announce in its quarterly annual results on 23 January. That hit stocks as investors took fright, because the iPhone is Apple's biggest revenue generator.
"Apple has cut its component orders for the iPhone due to weaker-than-expected demand," the Wall Street Journal reported, citing "people familiar with the situation". Its sources said orders for iPhone 5 screens have "dropped to roughly half of what the company had previously planned to order".
The news hit Apple's shares, which have fallen from a high of $702.10 in September ahead of the iPhone's launch. They began 2012 at $424, but after ramping through the year fell sharply from autumn onwards after two disappointing sets of quarterly figures and cautious guidance from the company on margins and revenues.
Carol Pepper, chief executive of Pepper International in New York, told the Reuters news agency: "There is this speculation building 'Is this the end of Apple?'. But, she added, it "doesn't have to grow at the rate it was to do extremely well. It's still going to be one of the marquee companies of the US and the world."
But others cast doubt on the WSJ report, pointing out that supplier companies would be unlikely to know about demand, or Apple's inventory levels. "We don't know the whole picture," said Benedict Evans, telecoms and technology analyst for Enders Analysis. "It's not a press release from the company or the suppliers. We're like the blind men trying to descibe an elephant. Halving orders would imply some fundamental collapse in Apple's operation, and there's simply no sign of that."
Horace Dediu, who runs the Asymco consultancy, said: "a simple explanation could be that yields from manufacture of the screens have gone up. Usually they have to throw away about 90% because they don't meet standards. If it has improved, the amount you need to make goes down."
Apple made exactly the same move to cut orders for parts in 2011 following the launch of the iPhone 4S, with a similar effect in which it was interpreted as weak sales. That year-ago quarter saw Apple sell a record 37m iPhones. With reports from AT&T and other US carriers, along with an earlier launch this year than in 2011 of the iPhone in China, some analysts reckon it could have sold between 48m and 55.6m iPhones in the quarter, which ended on 31 December.
Evans noted: "the 2012 quarter was 13 weeks - compared to 2011, which was 14 weeks, so even on a like-for-like basis Apple would show a 7% fall in revenue."
Dediu also pointed out in November that Apple has made colossal capital investment amounting to tens of billions of dollars, recorded in its financial statements, on manufacturing facilities. That, he suggested, could mean that it has funded a display production facility owned by Sharp, which has been teetering on the edge of bankruptcy despite being a major supplier to Apple. That, too, might mean that it could cut orders from other suppliers. "They just won't know what Apple's inventory is, or what they need," said Dediu. "A supplier there won't have any visibility on demand, and Apple would never tell them."
The news came as Samsung, the world's largest mobile and smartphone manufacturer ? and a key supplier to Apple ? announced that it has shipped 100m of its Galaxy S devices since April 2010, including the original Galaxy S, the Galaxy S2 in 2011 and Galaxy S3 in May 2012. The latter made up 40m of the sales, it said.
Rumours have been swirling that Apple is preparing to launch a cut-down version of its iPhone, using cheaper materials, some time in the spring. "So far Apple has had about 40 to 45% of global handset revenue, because the iPhone sells for around $650 ? while the fastest growth segment in smartphones is around $150," said Evans. The majority are cheap phones used on pay-as-you-go contracts. "Apple always aims for a quality point and then decides the price to charge," said Evans. "But I can certainly see them making a $200 phone."
Source: http://www.guardian.co.uk/technology/2013/jan/14/apple-shares-dip-iphone-5
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