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Second Apple analyst sees "softness" in iPhone demand

post #1 of 57
Thread Starter 
Two analysts have issued research notes to clients this week indicating that their checks with supply chain sources suggest forward looking iPhone build orders are experiencing some incremental weakness due to concerns about customer demand.

The first was FBR Capital Markets analyst Craig Berger, who used a report Monday to predict Apple would reduce its production rate of the iPhone 3G by as much as 40% during the current December quarter -- a three-month period where sales generally benefit from seasonality and the the mad holiday rush.

His calls were echoed Wednesday by fellow analyst Maynard Um at UBS Investment Research, who said his own investigation into the iPhone maker's component supply chain suggest build orders for the iPhone 3G may fall from 9 million during the prior quarter to 6.7 million - 7.3 million.

Unlike Berger, the UBS analyst used a portion of his note to explain the "obvious danger in making assumptions from supply chain chatter," or attempting to quantify forward looking iPhone demand by examining changes in Apple's orders for individual iPhone components rather than its precise orders for the fully assembled handsets, which are closely guarded.

For instance, there's often an unknown time lag between component orders and actual production, lower component orders could be the result of healthy component inventories already on hand at Apple's manufacturing facilities, and supply chain order and production plans can change on the drop of a dime.

"That said, recent supply chain cuts have proven accurate (at least directionally)," he wrote. "Hence, we believe recent data points may suggest unit volumes weaker than our current estimate of 5 million [for the December quarter]."

Um added that current build plans for Apple's March quarter, or the quarter immediately following the holiday shopping season, "appear to be low given channel inventory." However, he said he's less inclined to trust the accuracy of his data beyond the December quarter.

In his note to clients, the analyst also issued some comments on iPhone price cuts and Apple's surprisingly favorable selling expenses surrounding the touch-screen handset.

He noted that factors such as iPhone price cuts could result in greater demand elasticity, which would disrupt any build predictions for future quarters that are based on existing channel conditions. In fact, the analyst believes there will be a price cut on the handset in the near future, though he believes "operators may not necessarily pass on the cost-savings given already aggressive subsidies and pricing."

Meanwhile, Um is also keeping an eye on Cupertino-based company's operating expenses, and was surprised to find its "Selling, General & Administrative Expenses" (or SG&A) in line with its peers of approximately $20 per handset.

"We find it surprising that Apple is able to achieve this level of cost discipline at such an early stage in the iPhone lifecycle (RIMM and PALM experienced materially higher SG&A costs early in their product cycles - $25-$40 per handset)," he wrote.

He added that the company's well-established brand likely alleviates some advertising expenses, while only one handset SKU limits training costs of sales associates. However, should Apple look to further penetrate the high-end enterprise market, SG&A would likely rise "due to the 24/7 support requirements that most large enterprises require."

Um maintained his Neutral rating on shares of Apple with a $115 price target.

"Although we continue to believe Apple will be able to grow at a premium to the overall market and increase share gains going forward, we do not believe the company will be immune to the broader economic slowdown, which we believe is reflected in our 11% Mac unit growth expectation," he wrote.
post #2 of 57
Sounds reasonable at least in US- 3 new major touchscreen phones have/will have been introduced and people will now be even less likely to switch to an inferior network with all the bad publicity 3G/AT&T/iPhone has received.
post #3 of 57
How about a cutback to drain current inventory and introduce a 32GB version after the holidays?
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post #4 of 57
Quote:
Originally Posted by teckstud View Post

Sounds ureasonable at least in US- 3 new major touchscreen phones have/will have been introduced and people will now be even less likely to switch to an inferior network with all the bad publicity 3G/AT&T/iPhone has received.

A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.

It's really easy to forget what a minority the people are who read AppleInsider. I'm a pretty demanding user. But I have no hesitation about giving AT&T a try when my contract is up with Verizon.
post #5 of 57
Quote:
Originally Posted by razorpit View Post

How about a cutback to drain current inventory and introduce a 32GB version after the holidays?

Or maybe introduce a new Nano phone on a different network. Other phone makers can sell different models of different networks- can Apple?
post #6 of 57
Quote:
Originally Posted by AppleInsider View Post

Two analysts have issued research notes to clients this week indicating that their checks with supply chain sources suggest forward looking iPhone build orders are experiencing some incremental weakness due to concerns about customer demand.

I wonder how much demand there would be for an iPod Touch 3G?
Would Verizon customers who don't like Vcast but don't want to switch to at&t be interested?
Here is what I am thinking...

$199 32GB iPod Touch 3G with 2 year at&t contract $30/month
$229 8GB iPod Touch
$299 16GB iPod Touch
$399 32GB iPod Touch
post #7 of 57
Quote:
Originally Posted by walshbj View Post

A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.

It's really easy to forget what a minority the people are who read AppleInsider. I'm a pretty demanding user. But I have no hesitation about giving AT&T a try when my contract is up with Verizon.

I'm curuious- have you ever talked to anyone who's using an iPhone? At least here in NYC - the calls frequently are either hard to understand or drop. Will you be checking out the Blackberry Storm with Verizon first before you make your decision?
post #8 of 57
Apple really needs to stop adding crappy features and start fixing more bugs, i mean it's been over a year and Safari keeps crashing more and more often with every update, Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right, i love the device but there's a breaking point for everything and am starting to lose patience, it's just too many drop calls, it's like 1 in 2 gets drop
post #9 of 57
Quote:
Originally Posted by walshbj View Post

A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.

I agree with what you're saying but that applied 6 months ago. I just think people will be less likely to switch now that there are more touch sreen phone options available . Expect heavy advertising from iPhone touchscreen competitors as well.
post #10 of 57
Quote:
Originally Posted by fraklinc View Post

Apple really needs to stop adding crappy features and start fixing more bugs, i mean it's been over a year and Safari keeps crashing more and more often with every update, Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right, i love the device but there's a breaking point for everything and am starting to lose patience, it's just too many drop calls, it's like 1 in 2 gets drop

And there you have it. No matter how awesome the phone is, if you constantly get dropped calls then it's useless.
post #11 of 57
AT&T is no worse than Verizon.
post #12 of 57
Quote:
Originally Posted by Johnny Mozzarella View Post

I wonder how much demand there would be for an iPod Touch 3G?
Would Verizon customers who don't like Vcast but don't want to switch to at&t be interested?
Here is what I am thinking...

$199 32GB iPod Touch 3G with 2 year at&t contract $30/month
$229 8GB iPod Touch
$299 16GB iPod Touch
$399 32GB iPod Touch

I finally ordered my iPod Touch last night- was going to get 32GB but decided at last minute to go for 16GB in case either they add 3G or a camera next year and then I will want an upgrade.
post #13 of 57
Quote:
Originally Posted by Adjei View Post

AT&T is no worse than Verizon.

Then why is it rated close to the bottom of carriers per Consumer Reports?
post #14 of 57
Yeah but i still won't go back to a windows mobile device, i just want these damn bugs fixed
post #15 of 57
Quote:
Originally Posted by fraklinc View Post

Yeah but i still won't go back to a windows mobile device, i just want these damn bugs fixed

Garbage in; garbage out. If the carrier sucks and is causing the dropped calls then bugs or none - it ain't gonna change.
post #16 of 57
Quote:
Originally Posted by Adjei View Post

AT&T is no worse than Verizon.

In the midwest AT&T is far better than the others in my experience. Also I rarely have any crashes in Safari or any other of the apps. I rarely even reboot. This is typical of both my 3G and my family's original iphones. The big issue I have is there is no 3G service in most of the midwest (or country for that matter).
post #17 of 57
Quote:
Originally Posted by fraklinc View Post

Apple really needs to stop adding crappy features and start fixing more bugs, i mean it's been over a year and Safari keeps crashing more and more often with every update, Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right, i love the device but there's a breaking point for everything and am starting to lose patience, it's just too many drop calls, it's like 1 in 2 gets drop

Quote:
Originally Posted by teckstud View Post

And there you have it. No matter how awesome the phone is, if you constantly get dropped calls then it's useless.


True dat!! It's been over three months now since my iPhone's reception in Queens, NY has gotten bad enough that I use my wife's Razr to make and take important calls.
post #18 of 57
Quote:
Originally Posted by fraklinc View Post

Firmware 2.1 was good for about 3 weeks, but now me and everyone i know that has a iphone is getting hit with drop calls left & right

I've had my iPhone since February and have never had a dropped call. For that matter I've never heard of anyone I know reporting one either (not to say it hasn't happened)...

Maybe the issue is with network coverage in your area and not the phone itself?
post #19 of 57
Quote:
Originally Posted by teckstud View Post

I agree with what you're saying but that applied 6 months ago. I just think people will be less likely to switch now that there are more touch sreen phone options available . Expect heavy advertising from iPhone touchscreen competitors as well.

Well, not to blow sunshine on each other but I wondered the same thing - if the switch phenomena would end quickly - like it was caused by launch glee. My guess is it will slow down, but PLENTY of people will still switch. Lots of people like me are just waiting for their contract to end. 3G has only been out a short while, people are mid-contract.

It's pretty hard to predict this industry with any kind of certainty. Who would have thought the Razr would STILL be doing so well?!

Personally I don't think the other touch screen phones I've held come close. And those phones are fighting an incredible marketing buzz. Just like all the perfectly functional MP3 players that can't put a dent in the iPod share.
post #20 of 57
Quote:
Originally Posted by teckstud View Post

I finally ordered my iPod Touch last night- was going to get 32GB but decided at last minute to go for 16GB in case either they add 3G or a camera next year and then I will want an upgrade.

I'm sorry but isn't that the whole point of buying an iPhone - to get the cellular antennae and the camera?

I can see Apple adding a camera to iPod touch, but there isn't a snowball's chance in hell that they will put in a 3G chip.
post #21 of 57
There's also one other problem, Apple may be a victim of its own success here. The current iPhone may be so good that users may be hesitant to get a new phone when their 2-year contract expires.
post #22 of 57
Quote:
Originally Posted by BenRoethig View Post

There's also one other problem, Apple may be a victim of its own success here. The current iPhone may be so good that users may be hesitant to get a new phone when their 2-year contract expires.

If they change the casing back to metal, add 802.11n, make the camera better, add a frontside camera for video chatting, add 32GB, etc, I will buy a new iPhone.
post #23 of 57
Quote:
Originally Posted by teckstud View Post

I finally ordered my iPod Touch last night- was going to get 32GB but decided at last minute to go for 16GB in case either they add 3G or a camera next year and then I will want an upgrade.

I thought the whole point of an iPod Touch was to have the touch screen functionality of the iPhone, and share some apps as well

People who buy the iPod Touch don't want a 2 year contract, 3G would be useless unless the iTunes wifi store is able to work on it

Besides, Apple are marketing it as a games console almost.
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post #24 of 57
Quote:
Originally Posted by dougelo7 View Post

I'm sorry but isn't that the whole point of buying an iPhone - to get the cellular antennae and the camera?

I can see Apple adding a camera to iPod touch, but there isn't a snowball's chance in hell that they will put in a 3G chip.

While I agree that 3G won't happen I see no reason for it not to have a camera - especially when showing pics is part of its main attraction. I think they just held back on that for next year to entice an upgrade therefore only 16GB for me this year.
post #25 of 57
Quote:
Originally Posted by Fotek2001 View Post

I've had my iPhone since February and have never had a dropped call. For that matter I've never heard of anyone I know reporting one either (not to say it hasn't happened)...

Maybe the issue is with network coverage in your area and not the phone itself?

Well i been a iphone user since day one, but since i upgraded to the new 3G model i have had nothing but problems, piece of advice to you, don't upgrade to the new 3G, well at least not for now
post #26 of 57
Quote:
Originally Posted by teckstud View Post

Then why is it rated close to the bottom of carriers per Consumer Reports?

Dude every carrier has problems, to constantly point out AT&T while making Verizon seem like heaven is quite laughable. Every network has problems with dropped calls, places where you can't get signals, etc. If you like Verizon so much go for them, just don't expect everyone to be like you, Verizon is known for nickle and diming folks, why hasn't everyone flocked to them if they are as perfect as you want us to be.
post #27 of 57
With the imminent launch of widespread WiMax (FCC approved the new Clearwire company yesterday) I foresee future iPhone iterations taking advantage of this additional spectrum to fill in coverage gaps, especially after Apple has decoupled from at&t.

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post #28 of 57
Quote:
Originally Posted by Fotek2001 View Post

I've had my iPhone since February and have never had a dropped call. For that matter I've never heard of anyone I know reporting one either (not to say it hasn't happened)...

Maybe the issue is with network coverage in your area and not the phone itself?

Almost the same experience with the iPhone here in Toronto. I've only had a couple of dropped calls (out of about 250 calls), which is pretty much the same as every other cell phone I've used.

Sounds like an issue with AT&T's network in NYC...
 
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post #29 of 57
Quote:
Originally Posted by razorpit View Post

How about a cutback to drain current inventory and introduce a 32GB version after the holidays?

It would not affect the supply chain --- Apple would still need to buy those chipsets for the 32 GB iphone.
post #30 of 57
Quote:
Originally Posted by walshbj View Post

A lot of iPhone buyers won't do any research about the AT&T network, and will be more concerned about what color the phone comes in. It's hard to support your argument when the iPhone has demonstrated a significant ability to get people to switch carriers.

It's really easy to forget what a minority the people are who read AppleInsider. I'm a pretty demanding user. But I have no hesitation about giving AT&T a try when my contract is up with Verizon.

Pretty good point. I for one would not change networks just for a phone. Nokia will release two new TS phones in the very near future. Both will be unlocked, and have many more features than the iPhone for a lower price. This alone is incentive to walk on by the neighborhood Apple or AT&T store.
post #31 of 57
If you look at the iPod sales, they're very cyclical. Most of the volume is sold when a new model is released and at Christmas. I assume that the iPhone will follow a similar pattern.

It's no surprise that in-between the release of the iPhone 3G and Christmas there will be a dip in sales.
post #32 of 57
Quote:
Originally Posted by Adjei View Post

Dude every carrier has problems, to constantly point out AT&T while making Verizon seem like heaven is quite laughable. Every network has problems with dropped calls, places where you can't get signals, etc. If you like Verizon so much go for them, just don't expect everyone to be like you, Verizon is known for nickle and diming folks, why hasn't everyone flocked to them if they are as perfect as you want us to be.

I understand your anger man, you're the one with the phone call problems -not me. BTW I like any carrier that doesn't drop calls -it could be XYZ- it doesn't have to be Verizon. And I'm sorry you have such an awesome phone on such a lousy carrier AT&T (repeatedly on the bottom of consumer's lists)- too bad. Don't worry- iPhone in Europe I hear is awesome.
post #33 of 57
Quote:
Originally Posted by genericposts View Post

Pretty good point. I for one would not change networks just for a phone.

A person of common sense.
post #34 of 57
Quote:
Originally Posted by dougelo7 View Post

If they change the casing back to metal, ...., I will buy a new iPhone.

Change the casing back to metal? You really want poorer signal reception?
post #35 of 57
Quote:
Originally Posted by auxio View Post

...Sounds like an issue with AT&T's network in NYC...

There is definitely something screwy with the at&t network here in New York.
I recently took a trip out to the Midwest and was shocked by how good the at&t reception was.
There wasn't any 3G but the Edge network was significantly "snappier" than back in NY.
Calls were also much clearer and didn't experience any dropped calls while in 3 different states.
post #36 of 57
Quote:
Originally Posted by Adjei View Post

...Verizon is known for nickle and diming folks...

I got so many bogus charges on my account while I was with them. You really have to go over your bill every month with a fine tooth comb to make sure your not getting hit with some hidden charge.
post #37 of 57
Quote:
Originally Posted by Johnny Mozzarella View Post

There is definitely something screwy with the at&t network here in New York.
I recently took a trip out to the Midwest and was shocked by how good the at&t reception was.
There wasn't any 3G but the Edge network was significantly "snappier" than back in NY.
Calls were also much clearer and didn't experience any dropped calls while in 3 different states.

Probably something to do with signals bouncing off the canyon walls between those buildings.

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post #38 of 57
Quote:
Originally Posted by SpamSandwich View Post

Probably something to do with signals bouncing off the canyon walls between those buildings.

All signals bounce off walls. They do not home in on your phone's antenna. AT&T sucks pure and simple. No amount of apologizing will make that go away.
post #39 of 57
Quote:
Originally Posted by teckstud View Post

I understand your anger man, you're the one with the phone call problems -not me. BTW I like any carrier that doesn't drop calls -it could be XYZ- it doesn't have to be Verizon. And I'm sorry you have such an awesome phone on such a lousy carrier AT&T (repeatedly on the bottom of consumer's lists)- too bad. Don't worry- iPhone in Europe I hear is awesome.

The networks in Europe are better and the operators have been doing this for a few years. Apple and AT&T cook up these stupid stories that people are so willing to swallow. I really got a first hand glimpse of how utterly useless the iPhone truly is. My DSL went down over the weekend a few weeks back. I know, I'll tether my iPhone to my Mac. NOT !!!!!!!!!!!!!!!!! Apple in its wisdom removed a most basic function that just about ALL mobile phones have. Sooooo, I jumped into my car, went and purchased a Nokia N85, connected to the Internet all weekend and have not put my SIM card back in the iPhone. It just sits in the dock charging. Of course the apologists will say how wonderful it is for Apple to come up with this idiotic idea or how it is not Apples fault. Anyway, Nokia now has a new customer for sure.

Oh, did I mention that I can make VoIP calls without having to find a wifi hotspot?
post #40 of 57
Quote:
Originally Posted by genericposts View Post

All signals bounce off walls. They do not home in on your phone's antenna. AT&T sucks pure and simple. No amount of apologizing will make that go away.

Calm down, junior.

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