Tech

Apple shares dip after report of production cut

Apple to cut iPhone production: Report
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Apple to cut iPhone production: Report

Shares of Apple's stock dipped 0.9 percent on Friday, after a report that it might trim its production of the iPhone next year.

Apple could slash iPhone production 10 percent in the first quarter of 2017, The Nikkei Asian Review reported on Friday, citing calculations based on data from suppliers. Nikkei reports that the iPhone 7 has sold "more sluggishly than expected," drawing a parallel to last year's iPhone 6s, which piled up in warehouses due to oversupply.

Apple suppliers also saw shares fall after Nikkei's report.

Apple iPhone 7 mobile phones being sold.
Getty Images

Apple declined to comment to CNBC. But speaking broadly last week, CEO Tim Cook told CNBC that it was a "great holiday" for the company.

It's unclear whether Nikkei's report refers to a quarterly cut or a year-over-year unit cut, which would be more surprising.

Apple usually produces more phones for the fourth quarter, its busiest quarter for sales. Indeed, contrary to Nikkei's reports of swelling inventory, certain iPhones were in short supply this holiday season. Plus, Apple has also faced political pressure to move its production to the U.S., away from its usual supply chain.

"You always have to take supply chain data with a grain of salt," Colin Gillis, senior technology analyst and director of research at BGC Financial, told CNBC's "Power Lunch" on Friday. "But that doesn't neglect the fact that we're coming into the weak part of Apple's seasonal cycle."

Analysts surveyed by FactSet were already expecting more iPhones to be sold than the prior year in the March quarter.

Apple is expected to sell 78 million iPhones in the December quarter, up from 75 million last year, the estimates said. For the first calendar quarter, analysts expect 55 million iPhones to be sold, up from 51 million in the year-ago period.

At the end of November, UBS analyst Steven Milunovich noted that Apple might be "conservative with its supply chain" this March to avoid repeating last year's mistake of overestimating demand.

"Last year Apple initially provided the supply chain with high numbers only to cut numbers later," Milunovich wrote. "Given last year's misread on demand, its clear visibility beyond one quarter is limited causing Apple to play it safe for now. Apple could keep inventory lean through Dec in order to support what could be a difficult Mar."

Still, if a fluctuation in iPhone sales were to materialize next year, it would hit Apple where it hurts. The company has suffered several quarters of declining revenue amid phones sales that were more tepid than expected.

"As people wait for the next versions of the iPhone to come out — particularly with the [iPhone] 8, there may be some demand that gets pushed forward — you're going to see a weak first half of 2017," Gillis said.

For the full story, see the article at Asia.Nikkei.com.