Report: Apple to Cut iPhone 7 Production by 10 Percent

Continuing supply problems and relatively weak demand for the iPhone 7 will lead Apple to cut its production, the Nikkei Asian Review reported Friday.

Citing data from Apple's suppliers, Nikkei estimated that production of Apple's flagship mobile device would decrease 10 percent in the first quarter of 2017 compared to the same period a year earlier.

When Apple released its latest earnings report in October, CEO Tim Cook addressed the supply and demand issues, which he said were interrelated. The drop in demand was mostly a result of a shift in Chinese consumers' buying habits: people in China were quick to upgrade to the iPhone 6s, a surge that was much larger than the demand increase following the iPhone 5s, and not something that Apple was able to replicate with the iPhone 7.

Why the drop in Chinese upgraders? Cook cited several factors, including a challenging foreign exchange rate environment that has resulted in manufacturing supply shortages. Indeed, Nikkei reported that a shortage of camera sensors has curbed Apple's ability to meet demand for the iPhone 7, which has two rear cameras in addition to the front shooter.

A production cut signals that Apple isn't immune to the forces that have been shaping the broader smartphone market in 2016. Several analysts predicted that overall smartphone growth would slow this year, with Gartner speculating that the era of double-digit growth is over.

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But Strategy Analytics reported that smartphone makers around the world peddled 375.4 million units in the third quarter of 2016, up from 354.2 million units a year earlier. It was the industry's fastest growth rate for a year, and the firm expected a higher growth rate for the rest of 2016 than originally forecast.