Daniel Hruska Many of you may have read the news in recent days about the rapid decline in orders for components (mainly displays) for iPhone production. About this fact we you informed so do we. Speculations immediately arose that Apple was preparing to introduce a six-month production cycle, i.e. the production of a successor in the form of the next generation of the Apple phone (fill in the name yourself). Some prophets have even started spreading rumors about the beginning of the end for Apple. Rather, let's look at some numbers and see how things really are.
It all started on the Japanese server Nikkei. The Wall Street Journal seized on this unconfirmed information with some gusto: "Apple's orders for iPhone 5 displays fell by roughly half compared to the first fiscal quarter (October to December)." What is completely missing from this report and what was included in the Nikkei information, is: "Apple has asked Japan Display, Sharp and LG Display to cut LCD panel shipments by roughly half from the planned 65 million for the January-March period," according to people familiar with the situation. Does the 65 million number seem absurd? Let's think about these numbers a bit.
For the most recently ended quarter, estimates for iPhones sold range somewhere between 43-63 million units. We'll be smarter when Apple issues a press release. However, it should be noted that in addition to the iPhone 5, there are also two previous generations on sale, i.e. the iPhone 4 and 4S. The average value of all units sold is equal to roughly 49 million, the most optimistic estimates would add exactly 5 million of this amount to the iPhone 40. Since the fifth-generation iPod touch uses the same display, let's increase that number to 45 million.
Every year since the launch of the first iPhone, Apple has seen a cyclical decline in sales, typically in the second fiscal quarter (Q2), which is – unexpectedly – the current period. For example, sales of the iPod touch are falling rapidly during these months. Demand for the iPhone 5 is still strong, but if Apple needed 1 million screens in Q45, logically fewer will be enough in Q2. But how much? Let's call it 40 million. But if Apple ordered more displays in Q1 to be sure, it will not be necessary to produce the full 40 million. He will demand some 30-35 million from his suppliers for the rest of the winter. Of course, we don't know all this, we're just guessing. However, this is not known and neither did the Nikkei server or its unnamed sources.
But none of that stopped the WSJ from speculating right on the front page -- all eight days ahead of Apple's official financial results, which will be released on January 23rd. By all accounts, the past year should have been the peak of the Cupertino company, which has lost its stamp of quality. According to similar articles, this is exactly how the situation at Apple should look like. However, the numbers say otherwise as the company managed to sell 1 million iPhones during Q37 last year. Even the lowest estimates for this year were a 20% increase over last year. (At 50 million it would be 35%.)
Rumors of a reduction in the volume of supply of components brought interesting statistics regarding the competition. We first heard "good news" from Finland's Nokia, which sold 1 million Lumia phones in Q4,4. It goes without saying that it cut a mere 2% of its market share and boosted its sales by significantly discounting retail prices. It started at $99, which is about half of what competing phones start at. So this is good news according to Nokia. The Windows Phone platform still has a lot to show for similar results to not be repeated.
Cnet was very excited about Samsung's announcement of 100 million Galaxy S series phones sold. The phones are so in demand that "Flagship Galaxy S3 sales reached 30 million units in 5 months, 40 million units in 7 months, with average daily sales 190 pieces.” Beautiful numbers, you must think. But be careful, something even nicer can be done with them - let's put them in the context of the past quarter. Apple will sell as many iPhone 5s in it as Samsung managed to sell the Galaxy S3 in 7 months! "Experts" are already starting to attribute problems to Apple without seeing concrete numbers yet.
Of course, Samsung also offers the previous Galaxy S2 model for purchase. According to Cnet, with 40 million units sold in 20 months, it's a safe bet. So we have 2 million per month for this model together with 17 million Galaxy S3s, which according to Samsung sold in Q4. Further, if we compare only the last two generations in Q1, Apple sold some 35-45 million iPhones, Samsung around 23 million. It is true that if we counted all Samsung phones, it would significantly surpass Apple. But if we look at the profit, Apple will continue to clearly beat Samsung and other competitors there. And those are the important numbers.
Yes, iPhone 5 sales are falling and will continue to fall as the first wave of purchases has passed and Christmas is upon us. Now we just have to wait for next week when Apple will give us real and accurate data. As has become the custom in recent years, we can expect record sales and profits.
I think this is a completely transparent and obvious way to drop apple's stock price right before the announcement of record results, after which the stock will fly up. Whoever buys now for $500 will sell for $600 in a month.
Exactly, it's just a game to lower the price so that someone can make a mistake (I wonder how many shares of Apple the owners of the WSJ own) so that we don't wonder what Apple will surprise us with :-)
That's right, the whole speculation is about nothing else and it's basically a reduction in the share price just before the announcement of another record earnings. And they will reach 600 by the end of January :-)
I breathed a sigh of relief... I almost didn't sleep because of it...
Great article, I needed to read something like this after all the crazy alarmist news all over the internet.
Perfectly written! Thanks for the numbers and statistics.. ;)
Great article, finally someone wrote how it is. I've had enough of those "clairvoyants" who constantly predict the fall of Apple and get excited about the fact that a million Nexuses were sold in a month, even though Apple sold three times as many iPads in three days...
Interesting that someone took the trouble to do it. Apple is simply in a position where they don't know what will happen without Jobs and they don't really trust him to handle it. In addition, there is also a group of naysayers, and Apple will have to deal with it. I don't envy Cook. So far, they're doing just fine. It needs something to shut up. And that piece with false information (if it is proven) I would give some more solid newspapers a good shake if I were Cook.
It seems to me that you didn't notice a small detail, namely that the contracts are concluded based on some kind of expectation, and of course even Apple didn't realize until December that the next Christmas isn't in March, and they were expecting a drop in demand. So the reduction in orders means that, contrary to assumptions, the market is developing differently than Apple imagined. But of course otherwise the editors of the WSJ slice are total amateurs and that's why it needs to be properly explained
Of course, without information it is not possible to evaluate, only to speculate, but just as you state that someone did not know and still made a conclusion, so do you. I could speculate similarly. Why did Apple order so many components, according to you, "just to be sure"? Did they have such high expectations and couldn't estimate it according to internal statistics? 50% difference is a lot. Apple had no idea the next Q wouldn't be as good, maybe they are new to the market and have no idea what the sales curve is? They only found out after the end of the Q in which IP5 was introduced + Christmas in it that the next Q will be worse? In my opinion, the information that is going around the world now is not about what results we can expect now, those will be good, but about what will happen, i.e. worse sales in a worse Q than previous sales in similar conditions, or a new IP, or anything else "unexpected".
But as I wrote, I'm just speculating.
The fact is that you always pay for the delivered part (display, etc.) but also for the production capacity held by the supplier. This is calculated into the price of the part -> smaller volume = more expensive parts, if the consumption drops much lower than the ordered production capacity. It's simple, production lines for a certain number of parts need to be paid. No one in their right mind plans to have tens of percent of their production capacity left.
The ASP(Average Selling Price) of Nokia smartphones was $204 in Q3/2012 and $240 in Q4/2012. So in the last quarter it has grown dramatically. These numbers were published by Nokia. Among the smartphones, Lumia counted with WP and Symbians (which have an ASP around the one mentioned in the article, hundreds of dollars).