Apple Is A Short Into Earnings

It was reported by Japan's Nikkei that Apple has warned suppliers that they need 20% fewer components for its upcoming IPhones suggesting that demand is weaker than anticipated in the maturing smartphone market. This only makes sense as smartphone prices have escalated and there have been only minor upgrades to the specs in recent years, i.e., a couple more megapixels doesn't really move the needle anymore. All smartphones can make calls, take pictures, watch movies, text and send files. Only very small incremental changes that most people don't even require are what separates phones from 3 years ago to the latest product offerings. 

Consumers are going to hold onto their expensive smartphones for longer than ever before in the decade plus evolution of the smartphone device. This is bad news for companies like Apple who is so reliant on one device for the majority of its earnings profits and margins. Last year Apple told suppliers to plan on 100 million IPhone 8, IPhone 8 Plus, IPhone X device shipments which contrasts sharply to this year where Apple is telling suppliers to prepare for 80 million iPhones, that is quite a 20 million haircut, for what analysts were labeling the game changing IPhone refresh cycle. Remember all that analyst talk and hype that led up to the release of the IPhone 8? No wonder there are all those buy one get one free deals going on at the cell phone carriers lately. 

We have been getting these supply chain reports for a couple of months now, when in late April the CFO of a key Apple chip supplier -- Taiwan Semiconductor warned of "mobile softness" and "continued weak demand" when it reported earnings. We have also been getting a pattern of reports from the semiconductor companies that make processors used in iPhones that demand for new smartphones is weaker than expected, which is even more telling of the nature of the smartphone market given the robust economy overall. Remember that supply chains have a lag effect, and we started to get these reports in late April, and they are continuing as recently as last Friday for the fall forecasts for IPhone demand. It seems things are deteriorating in this market, and are only going to get worse from here. I have a feeling Apple is going to miss their earnings report in early August, and miss rather significantly for the first time in a long time on these IPhone numbers. 

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Michael Molman 5 months ago Contributor's comment

Comments on Warren Buffer aside. I agree with the analysis on $aapl. I wrote a similar article regarding slowing iphone sales back in October. Since then Apple has rallied but not as much as it should have given the size of Buffets buying and stock buybacks. Will make a good short one day.