Apple Cuts Orders for iPhone Parts as Demand Slips

 Apple cuts orders for iPhone 5 components due to weaker-than-expected demand, people familiar with the situation say. iPhone 5 screens for January-March quarter have dropped roughly half of what the company had previously planned to order, they say Apple Inc. (AAPL) has cut its orders for components for the iPhone 5 due to weaker-than-expected demand, people familiar with the situation said Monday, indicating sales of the latest smartphone haven’t been as strong as previously anticipated.

Apple’s orders for iPhone 5 screens for the January-March quarter, for example, have dropped to roughly half of what the company had previously planned to order, the people said.

The Cupertino, Calif., company has also cut orders for components other than screens, according to one of the people.

Apple notified the suppliers of the order cut last month, the people said. The move comes as the company has been facing greater challenges from Samsung Electronics Co. and other makers of smartphones powered by Google Inc.’s Android operating system. While Apple has set the agenda for the smartphone market since it released its first iPhone in 2007, South Korea’s Samsung, which sells many Android-based models at various price points, has already overtaken the U.S. company as the world’s largest smartphone vendor by market share. Demand is also growing for inexpensive smartphones from Chinese makers such as Huawei Technologies Co.

While the popularity of iPhones and iPads has been boosting Apple’s earnings and investor expectations over the past few years, there have been concerns in recent quarters about how long the growth momentum can continue. Apple’s stock price, which peaked at about $705.07 in September, closed Friday at $520.30, down 0.6%.

Some analysts have mentioned possible order cuts at suppliers and raised questions about demand for the iPhone 5.

Apple may have made particularly large iPhone 5 orders to suppliers for the October-December quarter, because of earlier concerns about manufacturing difficulties with some components such as screens, said Sanford Bernstein analyst Alberto Moel.

Citigroup last month lowered its rating for Apple to Neutral from Buy, citing concerns about iPhone order cuts. The brokerage noted that a sharp increase in iPhone 5 production during the October-December period may have left Apple with more inventory than expected. Still, it also said that “good not great” demand is likely a factor behind order cuts.

“It is unlikely that Apple is cutting orders in a ‘great’ demand environment,” Citigroup analysts said in the Dec. 16 report.

Apple representatives weren’t immediately available for comment. In the 2012 third quarter, Apple held 14.6% of world-wide smartphone shipments, down from a peak of 23% in the fourth quarter of 2011 and the first quarter of 2012, according to IDC.

Samsung’s market share, meanwhile, rose to 31.3% in the third quarter of 2012, compared with 8.8% in the third quarter of 2010. The Korean company said earlier this month that it expects to report another record operating profit for the fourth quarter of 2012, capping its best year ever amid strong sales of its Galaxy line of smartphones. The company expects an operating profit equivalent to between $8.1 billion and $8.5 billion for the three months ended in December.

Apple is slated to report earnings later this month. The iPhone 5, released in September, represents Apple’s effort to maintain its strong position amid intensifying competition. The latest model comes with a longer, four-inch screen compared with the 3.5-inch screens used in all previous iPhone models.
While the iPhone remains dominant in the U.S., other major markets such as China are becoming increasingly important for the company’s continued growth.

Last week, Apple Chief Executive Tim Cook met with China Mobile Ltd. Chairman Xi Guohua to discuss cooperation, as the U.S. company tries to gain access to the world’s largest mobile carrier with more than 700 million subscribers.

Japan’s Sharp Corp. and Japan Display Co. and South Korea’s LG Display Co. are the three suppliers of the screens, according to people with knowledge of the matter. When the iPhone 5 was launched, there were concerns that suppliers might not be able to produce enough to keep up with demand.
Apple’s cut in orders may also affect first-quarter sales of component makers, some of which are largely dependent on the U.S. company. The fact that some iPhone components are highly customized makes it difficult for suppliers to find alternative buyers in a short time frame. Sharp, one of the suppliers of the screens, has been struggling financially with a cash crunch and losses from its television operations.
Japan’s Nikkei reported earlier Monday that Apple has slashed its orders for iPhone 5 components.    

Source: Dow Jones