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Apple Supplier News and the iPhone X

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iPhone X sales

The holiday season is the peak sales period for Apple (AAPL), and the 2017 holiday season marks the tenth anniversary of its most popular product—the iPhone. Apple launched three versions of its smartphone—the iPhone 8 and iPhone 8 Plus in late September 2017 and its flagship iPhone X in November.

Apple earns more than 60% of its revenues from the iPhone, so the performance of this product significantly impacts its earnings. The company’s investors are looking to the success of the iPhone X for future growth, as it is the first handset with a price point of $999.

Although some analysts were concerned whether consumers would be willing to buy an iPhone at such a high price, the initial customer response removed this doubt.

The high demand for the iPhone X and inconsistent supply pushed the lead time for the device to five to six weeks in November 2017, the highest in the iPhone’s history. The lead time is the time gap between preorder and receipt of the product.

One Apple supplier warns of declining sales

On December 6, 2017, the Nikkei Asian Review reported that a Taiwan-based (EWT) Apple supplier, Largan Precision, warned of a decline in monthly revenues in December due to a reduction in orders from some customers.

Because Largan Precision, which supplies camera lens for iPhones, did not state the name of the customer, it is not clear whether that customer was Apple. Apple has a strict nondisclosure agreement with its suppliers that prohibits them from revealing its name or business details.

Largan Precision’s news created a temporary decline in the stock prices of several major Apple suppliers—Skyworks Solutions (SWKS), Broadcom (AVGO), and Qorvo (QRVO)—on December 6, 2017.

Largan Precision’s news

December is a traditionally strong month for Apple and its suppliers. Apple reported its first decline in iPhone sales in December 2016, which forced the handset maker to cut production by 30%. So, investors are being cautious regarding any negative news related to the iPhone.

One analyst expects a slowdown in iPhone production

Yuanta Investment Consulting analyst Jeff Pu stated that suppliers’ news shows that demand for the iPhone X is softening. After talking to Apple’s supply chain at the end of November 2017, Pu stated that the handset maker has halved its 1Q18 orders for the iPhone 8 and 8 Plus to 16 million units compared to 32 million units in 4Q17.

Pu stated that Apple has also reduced orders for iPhone X components by 11%–12%. The company has scaled back production of the iPhone X from 69 million units to 63 million units for November 2017 to March 2018.

In this series, we’ll see whether Apple is actually seeing a decline in iPhone X sales. We’ll also see how the performance of its manufacturing and supply chain affects its earnings.

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