IPhone Production Cuts: Worrying or Exciting News?
Having a hot, new iPhone 5S out on the market might not help if no one thinks high-end smartphones are going to sell well, including Apple (NASDAQ:AAPL) itself. Apple may be cutting production of its iPhones, but what does the move suggest?
Brian Blair of Wedge Partners was the one who suggested the likelihood of Apple cutting the production of its iPhones, including older models and yet-to-be-released models, from between 115 million and 120 million units down to between 90 million and 100 million units. This would be about a 20 percent reduction in production.
The reduced production estimates stem from Blair’s belief that “slowing demand for high-end handsets globally” will impact Apple, which has only launched high-end smartphones to date. Though investors may have hope that a new run of products from Apple could turn the stock around from months of negativity, a new iPhone won’t mean much if it has low sales. However, there may be more to it than just poor market performance for high-end phones.
Many have speculated about a low-cost iPhone being in the works at Apple. If the company is developing such a phone and plans to launch it this fall, it could be the perfect timing for such a device. If the high-end smartphone market can’t grow, the lower end will have to pick up the slack. A low-cost iPhone could see good market performance without needlessly cannibalizing sales of the higher-margin iPhones in this scenario.
There is also the potential that Apple will be producing less smartphones because of the rise of a different smart-tech category: wearable devices.
Many companies are working on the next generation of smart technologies. Google (NASDAQ:GOOG) has developed Google Glass. Sony (NYSE:SNE) has made several iterations of smart watches, and Samsung (SSNLF.PK) has announced plans to launch one as well. And they aren’t the only ones people expect to launch wearable devices.
If Apple lowers production of its iPhones, it could be because it plans on some consumers opting instead for wearable gadgets. Many Apple-watchers believe the company is working on an “iWatch,” and anticipation has risen as Apple recently applied for an iWatch trademark in several different markets.
Whatever the case may be, Apple may still have some comfort in the tablet market, which hasn’t shown the same high-end weakness that the smartphone market has. Blair, the analyst, said he did not expect Apple to reduce its production of iPads for the second half of the year.
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