The Wall Street Journal reported last night that Apple has been contacting suppliers to reduce iPhone 5 part orders due to ‘weaker-than-expected demand.’ The story has made some serious waves today, causing Apple’s stock price to drop (at the time of writing) 16 points.
But for several industry watchers, including myself, the math on last night’s report just doesn’t add up…
Before we get started, let’s make sure we’re all on the same page. The Journal reported last night that Apple contacted multiple component suppliers last month to cut iPhone 5 part orders for the March 2013 quarter. It used screens as an example, which it says were cut 50%. The report was backed by Reuters, who cited a different source, claiming that Apple cut its original order of 65 million iPhone 5 screens in half.
This is where the math gets sketchy. On what planet would Apple expect to sell 65 million iPhone 5 in a quarter — especially right after the holidays? The company sells, on average, 29 million iPhones per quarter, and its record is 34 million. So where does the 65M come from?
Also, to believe the two reports, you’d have to assume that the operations wizard known as Tim Cook and his team fudged the numbers by 50% some where. But given Cook’s reputation, and Apple’s near flawless track record since he signed on, I can’t imagine that being the case.
So then what, assuming the stories from Reuters and The Journal are correct, could cause such a fluctuation in display parts? Well what about that ‘iPhone 5S’ that’s rumored to debut in late Q1, early Q2 of this year? Isn’t it supposed to have some sort of new touch-on-display technology? That sounds like a pretty good reason to me to reduce orders of current iPhone 5 screens, and to cut other components as well.
Or, as Instapaper’s Marco Arment suggests, this could all be nothing more than an attempt to manipulate Apple’s stock price:
“But the biggest reason this smells wrong to me is the timing. Apple’s stock has been depressed for a few months, and many analysts (and much common sense) suggests that it’s probably very underpriced considering Apple’s financials. This news has sent it down another 3% today alone, and it will probably fall further over the next few days.
But next week, Apple reports its earnings for the quarter that included the iPhone 5’s release and the holidays. Most reasonable predictions suggest that it’s going to be very good news. As with good quarterly-earnings reports in the past, the stock could shoot up, and anyone who bought a bunch of it recently at a steep discount could make a lot of money.”
Exactly. I wouldn’t be the least bit surprised if this all had something to do with stock manipulation. People do it all the time, and what better time to do it with Apple stock than when it’s already ridiculously undervalued? You could stand to make a fortune if the cards fell just right.
And they’re expected to. Apple is believed to have sold in upwards of 50 million iPhones and 24 million iPads during the holiday quarter, which would both be company records. And that would, assumably, mean it also saw record revenue and profit for the quarter as well.
So, to answer the headline’s query, do these reports of supply cuts mean Apple is in trouble? No. The reports were vague, anonymously-sourced, and as you can see, their presumed ‘due to weaker-than-expected-demand’ argument is seriously flawed. We’ll find out for sure next Wednesday when the company reports its holiday quarter earnings, as well as gives its guidance for the March quarter.