Apple Shares Decline – Here’s Why

AAPL

Apple Inc., the world’s largest firm by market capitalization, is rumored to have decreased its production plans after an anticipated flood in demand for the company’s new iPhone 14 family line has thus far failed to arrive. Shares were down 4% in the morning trading session on the back of the rumors. Despite the change in demand forecast, Apple is still outperforming the S&P 500 for the year, with shares down 17.5%, versus the 23.5% decline in the benchmark.

Apple had apparently indicated to its suppliers that the smartphone maker wanted production to be increased by 6 million units in the second half of this year. Those ambitions seem to have been scaled back and the Cupertino, California based company has now reverted to producing 90 million handsets for the period. While lower than the projections provided to suppliers, the 90 million level would match the throughout as the same period in 2021 and meet Apple’s original guidance from July.

The good news for the company is that Bloomberg reported that the demand for the higher-priced pro versions of the new iPhone 14 is seeing stronger demand than the lower-end standard models. Suppliers are also shifting their production mix and increasing manufacturing capacity for the higher-priced premium models while lowering their output for the base models. A higher average selling price per phone would also boost margins at the company. Total revenue could also exceed analysts’ expectations if the company matches these news reports.

Much of the shortfall in sales may be coming from the economic slowdown in China, which has become an increasingly key market for Apple in recent years. Third-party data aggregators on Apple’s sales have reported that the iPhone 14 series unit sales were down 10% on the mainland over the iPhone 13 series sales in the first two days the phone became available. The fact that Apple has not lowered its projections beyond the 90 million mark may be indicative of higher demand in the rest of the world.

Some publicly listed suppliers to Apple were trading down on the news. Hon Hai Precision Industry was down 2.5% this morning, while Taiwan Semiconductor was off by 1.9%. Other suppliers such as Qorvo Inc and ASML Holding were flat to up slightly, indicating that the news has not been viewed with wholesale negativity by investors and analysts alike. Apple also has a history of adjusting estimates throughout the course of the holiday season. In previous years, the company has sharply reduced orders from suppliers initially, only to increase them a few weeks later.

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