Supply cuts? Think a major technology shift ahead of iPhone 6

iPhone 5 mockup (Martin uit Utrecht 001)

There has never been so much hoopla surrounding Apple’s supply chain like recent talk of a severe cut back in orders of screens for the iPhone 5, and now iPads as well. The negative sentiment in those unverified reports has already sent AAPL below $500 ahead of the impending earnings call.

But one analyst isn’t worried at all. In his mind, the cutbacks are the result of an upcoming “evolutionary technology update” for the next iPhone rather than a sign of a lack of demand for the new Apple handset…

According to MacWorld UK, Global Equities Research’s Trip Chowdhry says a drop off in Apple screen orders supplied by Sharp, LG Display and Samsung Display is an indication of the Cupertino firm starting to source mobile screens from a new supplier, in preparation for the launch of the next iPhone:

The data is accurate, cancellations are happening – but what is the underlying reason? There is a technology shift happening at Apple.

Chowdhry then adds that Apple is about to launch an “evolutionary leap in phones”, likely the iPhone 5S which is expected in a few months.

Also this:

According to Chowdry, Apple has been ordering glass that is also able to be cut into large panels, which could indicate that the company is working on its widely speculated Apple television set.

But what kind of a technology shift is this analyst talking about?

If China Times is right, the next iPhone will have a new Touch-On-Display technology from Foxconn subsidiary Chimei Innolux. Touch-On-Display doesn’t make the display assembly any thicker, but instead fixes the slower response speed of  the iPhone 5’s in-cell panel.

If you’ve been following supply chain reports, you probably are aware that Apple is rumored to be adopting a new display technology for upcoming products. Corroborating these market whispers, sources told AllThingsD that Apple has been evaluating IGZO displays for use in iOS devices.

Chowdhry acknowledges as much himself:

He expects Apple to introduce IGZO screens into its next iPhone, which will be lighter, more energy-efficient, and easier to cut for different sized models.

And this report by Taiwan-based China Times newspaper says Apple for the second-generation iPad mini is already evaluating Retina panels from Foxconn subsidiary Shenzhen Century Science & Technology, based on the new One Glass Solution assembly process.

If you ask me, deploying a new display tech and assembly process across the forthcoming iPhones and iPads is a pretty good reason to cut orders for the current display technology that’s now basically being phased out.

iPad mini (landscape, in hand, display)

Although a seasonal dip is normal around the holidays and especially going into the sales slump known as post-holiday Q1, the cutbacks Apple’s suppliers are now seeing are seemingly impossible to ignore.

On the other hand, lots of doubt surrounds the figures cited in flawed Nikkei and WSJ reports. Seriously, 65 million iPhone 5 units in the quarter right after the holidays? Be that as it may, it’s head-scratching Apple would suddenly see such a drastically weakening demand for both the iPhone and iPad, the company’s two most popular product lines.

J.P. Morgan analyst Mark Moskowitz  deems the cutbacks for iPhone 5 screens the result of “supply chain adjustments” that are “explainable but not alarming”. Other analysts are also telling spooked investors that the cutbacks may not mean lower demand for Apple gizmos.

If you ask me, that’s exactly what’s at play here: a technological shift ahead of a new product introduction. That would by no means file as a small feat. Adopting the cutting-edge IGZO screen tech, for example, across future iOS devices would admittedly file as a marvel of engineering.

These cutbacks happened numerous times in the past, but nobody paid much attention. With Tim Cook at Apple’s helm and the past two quarters missing expectations, some folks are reading too much into these reports.

As Apple is now scrutinized like crazy, inevitably some watchers are fooled into misinterpreting supply chain data. And I have no doubt in my mind that somewhere in these reports there is a hidden agenda (can you say “stock manipulation”?).

Are you concerned about the cutbacks?