Friday 28 October 2016

Investors rattled as Apple cuts production of iPhone 6s

Published 07/01/2016 | 02:30

A customer enters the new Apple store at Covent Garden in London
A customer enters the new Apple store at Covent Garden in London

Apple is expected to cut production of its latest iPhone models by about 30 percent in the January-March quarter due to mounting inventories, the Nikkei reported, rattling the nerves of investors in the US giant's Asian suppliers.

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As inventories of the iPhone 6s and 6s Plus have piled up since they were launched last September, production will be scaled back to let dealers go through their current stock, the business daily reported.

The report prompted a 2.5pc drop in Apple shares, which have lost about a quarter of their value from record highs in April, reflecting worries over slowing shipments. Shares in the mainly Asian makers of the iPhones' screens and chips were also sharply lower yesterday.

"This is an eye-opening production cut which speaks to the softer demand that Apple has seen with 6s out of the gates," FBR Capital Markets analyst Daniel Ives said. "The Street was bracing for a cut but the magnitude here is a bit more worrisome."

Apple was not immediately available for comment but some Taiwanese suppliers pointed to falling sales, a rare holiday break and a government subsidy as evidence of the gloomy outlook.

"The slowing down of the market is the truth," one Taiwanese supplier said, requesting anonymity because they did not comment on specific clients or confidential agreements.

In China's Henan province, the Zhengzhou capital city government said in a statement on its website this week it had awarded 82 million yuan (€11.7m) in subsidies to companies under Foxconn, a major iPhone assembler.

Officially called Hon Hai Precision Industry Co, Foxconn employs hundreds of thousands of workers in the province, and a subsidy of this kind suggests the government is concerned about the company's ability to maintain its workforce, analysts said.

Another Taiwanese supplier said Foxconn had granted its factory workers time off around Chinese New Year, which falls on February 8, rather than follow its past practice of paying overtime to keep its production lines humming through the biggest holiday in China.

Hon Hai declined to comment on the issue. Its shares closed down 0.1pc, but had been trading earlier at lows not seen in over four months. Among LCD panel makers, Japan Display Inc fell 4.7pc while LG Display Co Ltd fell 3.4pc. TSMC, the world's largest chipmaker and which has supplied some of the chips used in Apple iPhones, fell 1.8pc.

Production is expected to return to normal in the April-June quarter, the Nikkei reported.

However, Patrick Moorhead, an analyst at Moor Insights & Strategy, said he was a bit skeptical about the production cut reports.

"Apple has been gaining significant market share in pretty much every region, and I'm not seeing a global slowdown," Moorhead said.

Wall Street has tempered its view on the high-flying Apple stock in recent months. Since early December, about a third of the analysts tracked by Thomson Reuters have trimmed their estimates on Apple.

For fiscal 2016, Apple is expected, on average, to grow revenue by under 4pc, a far cry from the 28pc revenue growth it achieved in the fiscal year that ended in September.

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