Analyst: Nikkei iPhone 6s supplier story says nothing of iPhone demand; site wrong before in 2013

Posted:
in iPhone edited January 2016
While reporting that Apple could cut supplier orders for new iPhone 6s models by "30 percent," Japanese business newspaper Nikkei has characterized the move as "inventory adjustment" while adding that other iPhone models "have continued to sell."




Despite Samsung gravely warning of Peak Galaxy, there's zero evidence of a demand crunch causing Peak iPhone.

The Nikkei story was initially reported as stating that "Apple is expected to reduce output of its latest iPhone models by around 30% in the January-March quarter," without identifying the source of the rumor or even naming the actual suppliers purportedly involved.

Instead, it named only "Japanese and South Korean parts suppliers" in general and cited an outside analyst as speculating that the cuts could involve a series of specific companies.

AppleInsider first referenced the report without calling attention to an entire paragraph in the article which stated, "Output will be scaled back to let dealers go through their current stock. Production is expected to return to normal in the April-June quarter, once inventory adjustment is complete. Apple's products and brand have not lost their appeal, and older models have continued to sell."

That indicates that the rumored supply cuts have no real relevance on overall iPhone demand or unit sales for last quarter or the current quarter, and instead only pertain to internal inventory adjustments. Apple analyst Ben Bajarin noted on Twitter "My data and checks confirm the same."

My data and checks confirm the same. FWIW.

https://t.co/AKSaEfYJa5

-- Ben Bajarin (@BenBajarin)


Piper Jaffray analyst Gene Munster has similarly characterized the channel check rumors as production estimates that have little to do with final reported sales.

Channel check interpretations in a changing product mix



Interpreting the meaning of changes in Apple's vast supply chain would require an in-depth understanding of the company's inventory management, its production ramp and how early production began compared to the previous year.

Last year was Apple's first ever production of two different sizes of new flagship iPhones; this year the company has more experience in producing multiple models simultaneously and has prior data on consumer demand for the standard 6 and larger 6 Plus models in each of the different regions it sold the phones.

However, this is the first year Apple has sold two different generations of new pairs of flagships, meaning that the company is again learning for the first time how many of its customers will opt for the latest and greatest 6s/6s Plus models versus going with the discounted previous year 6/6 Plus editions that offer the same size benefit without new features such as 3D Touch, Live Photos, a higher quality camera, front facing Retina Flash and 4K video recording.

Coverage of the Nikkei rumor by Kelly Evans of CNBC noted that Apple "wouldn't comment" on the issue, but Apple's chief executive Tim Cook previously addressed such supply chain rumors in January 2013, noting according to an earnings call transcript by MacWorld, " I know there's been lots of rumors about order cuts and so forth, and so let me just take a moment to make a comment on these.I would suggest it's good to question the accuracy of any kind of rumor about build plans. And I'd also stress that even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business - Tim Cook

"I don't want to comment on any particular rumor, because I would spend my life doing that, but I would suggest it's good to question the accuracy of any kind of rumor about build plans.

"And I'd also stress that even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex, and we obviously have multiple sources for things. Yields might vary, supplier performance can vary, the beginning inventory positions can vary, I mean there's just an inordinately long list of things that would make any single data point not a great proxy for what's going on."

This all happened before



Cook made those comments three years ago in January 2013 because of reports issued just prior to Apple's earning release which claimed that the company had slashed its display orders "in half."

That report came from the same Nikkei paper that is now claiming Apple's iPhone 6s supplier orders may be cut by "30 percent." The Wall Street Journal also followed up with its own version of the channel check story in 2013, centering its attention on iPhone 5c. However, that paper first backpedaled its story, and ultimately was proven wrong as iPhone 5c turned out to be not only popular but strategically important in inciting Android switchers and a major smartphone success story.

As Cook noted, even if there had been any element of truth to Apple's reported internal supplier changes, it had no impact on the number of iPhones Apple actually sold back in 2013. Apple reported sales of 47.8 million iPhones in the holiday quarter, representing a 29 percent increase over the previous year.

The following quarter, Apple reported sales of 37.4 million iPhones in its historically slower post-holiday March quarter. There was no indication of any supply cut, and no possible way Apple could have been hoping to sell twice as many iPhones in the March quarter, as the Nikkei report implied.

In fact, the original Nikkei rumor in 2013 even included an alternative explanation of the rumored supply chain cuts from analyst JoAnne Feeney of Longbow Research.

"Our checks with supply chain contacts close to the situation identified a very different cause: a slower ramp in the manufacturing of iPhones and iPads (reflecting some quality control issues) and insufficient production lines," Feeney was cited as saying.

"Rather than ordering more components and having inventory build up further, Apple put component suppliers on notice to hold off, for the time being, on further shipments until it expanded its production lines - which it plans to complete by the end of the quarter."

Nikkei, along with the Wall Street Journal, chose to instead focus on the potential of weak demand for iPhones being behind the supply chain inventory adjustments. As Cook later noted, interpretations of the meaning of rumored supply chain changes have regularly been wildly inaccurate.

After the past couple of years, people really ought to have learned that supply chain production volume rumours for iPhones are worthless

-- Benedict Evans (@BenedictEvans)


Previous supply channel check rumors were wrong in 2012, independent supply channel checks from other sources (including Piper Jaffray analyst Gene Munster and Jefferies' Peter Misek) were wrong in 2013, and over the past quarter a series of supply channel check rumors (including regular reports issued by Credit Suisse analyst Kulbinder Garcha) have also failed to result in any real insight on how many iPhones Apple will actually report from the last quarter, or the quarter that will be reported more than three months from now.

Channel check rumors have, however, resulted in driving Apple's stock price down dramatically, just as they did in 2013 the last time the Nikkei and the Wall Street Journal reported them.

Who benefits from low priced Apple shares?



Apple's ex-cash market cap is now lower than Alphabet, a company that earns less than a third the revenues or cash flow. Apple's quarterly revenue growth is also over 70 percent greater. If Apple were valued like Alphabet (with a P/E of 34.93), it would be currently priced at over $320 rather than today's close of $102.71.

Apple's current P/E is 11.17, in the neighborhood of where it sat in 2013 while sites like the Wall Street Journal were incessantly reporting an outlook that claimed the company had ran out of innovation and that Samsung was eating into its business.

That huge differential in valuation swings allows stock manipulators to cash in on both rumor-fomented panicked selling on the way down, and then again during the market's reaction once Apple announces its actual earnings in about two weeks.

However, it's also of benefit to Apple's long term investors. That's because Apple is currently spending the already committed billions in its capital return program to buy back millions of shares at prices that are incredibly low.

Apple has at least $36 billion left from its $140 billion earmarked for buybacks, so any dips in the stock are an opportunity to buy more shares than it otherwise could, if Apple were given a current valuation similar to its less profitable peers that are growing more slowly.

Over the September quarter, Apple spent $14 billion buying back nearly 122 million shares, representing an average price of around $114.75.

This quarter, Apple has the potential to buy back as many or even more, with share prices already having dipped as low as $102.24. The more shares Apple can buy with its cash, the bigger impact it can have on retiring shares, which drives its Earnings Per Share metrics upward and concentrates the value of Apple across a smaller number of outstanding shares.
JamesBB

Comments

  • Reply 1 of 19
    This is why I never read too much into these "reports". They're created by analysts with an agenda, to bring down the price of the stock so they can purchase at cheaper price and then they'll change their tune to inflate the price and to sell at a premium. Classic Wall Street tricks.

  • Reply 2 of 19
    FWIW, SEC rules dictate that AAPL cannot buyback shares 4 weeks prior up to 1 week after an earnings announcement. Since earnings will be announced on Jan 26, AAPL cannot buyback stock in the Dec 29, 2015 - Feb 2, 2016 timeframe.
    cornchip
  • Reply 3 of 19
    radarthekatradarthekat Posts: 3,350moderator
    I'm not sure that's what the SEC rules say.  I could be wrong but I did take a look at this about six months ago and I didn't see that specific constraint.  Certainly it can pre-schedule repurchases that fall into that timeframe, so maybe there's a rule about opportunistic open-market purchases.  And it can also use accelerated repurchase agreements that might have been put in place at attractive prices.  I'd be interesting to know whether Apple made any such moves to add such agreements when the stock dipped in August, which could still be playing out now at very attractive prices.
    edited January 2016
  • Reply 4 of 19
    Nikkei is probably responding to Apple reducing orders for LCD panels from Sharp and JDI as the iPhone 7 may be moving to OLED. There is also the issue of the upcoming 4 inch model that will likely impact the sales of the existing 5S, 6, 6+, 6S and 6S+ models. There are actually quite a few models now in the supply chain.

     Apple is still firing on all cylinders although I am still waiting on the pencil. And I am still waiting for OLED panels. Despite Samsung's gorgeous screens and better cameras, I still will not purchase an Android device. 
    cornchip
  • Reply 5 of 19
    Was a bit concerned about Largan reporting tonight a 30% drop in December sales.  Largan makes the lens module for the 6S.  Of course, it's all over the web about how this is another piece of evidence of the impending disaster that awaits Apple.  There was even some "moron' on CNBC who couldn't wait to say things are crumbling even faster than he thought.  Another demonstration of journalistic integrity.

    EXCEPT the Digitimes reported back in September the following: http://www.cultofmac.com/390193/apple-shows-iphone-6s-lens-supplier-whos-boss/

    "Having Apple on your side can, unsurprisingly, be a massive boon to any manufacturer. But don’t try and play hard ball with Cupertino — as the Taiwan-based Largan Precision could be about to find out.

    According to a new report, Apple may shift 30 percent of its orders for the lens modules for the iPhone 6s away from current contractors Largan Precision to Japanese rival company Kantatsu, over Largan’s refusal to lower its prices.


    As a manufacturer, you’d think that choosing the week of the new iPhone launch would be a good time to plant a flag refusing to offer Apple favorable pricing — or further discounts — on your products. From the sound of things, though, Apple is more than willing to join Largan in a game of “who will flinch first?”

    Taking away 30 percent of Largan’s orders isn’t the same as switching manufacturers altogether, of course, but it’s still enough to wreak havoc with a manufacturer banking on receiving orders for at least the next year.

    Market watchers claim that Largan’s revenues for September will be negatively affected by the loss of any iPhone 6s orders, and suggest that the company have difficulty achieving further growth as a result.

    As we saw when GT Advanced Technologies revealed Apple’s one-sided terms for manufacturers, life as an Apple supplier can sometimes be tough. But when you’re in a market in which other companies would do virtually anything to get a piece of the iPhone action, you’re not exactly in the best position to dictate terms.

    Them’s the breaks, as I’ve heard it said."


    badmonk
  • Reply 6 of 19
    On January 27, 2015... Apple announced they had sold 74.5 million iPhones during last year's Holiday quarter.

    On January 26, 2016... Apple will announce this year's Holiday numbers.

    Will they be higher or lower?

    If they are lower... then yes... sales are down.  But we won't know for a couple weeks.

    We should also keep an eye out for the April quarter results... since any reduction in production now will affect that quarter then.   Apple sold 61.2 million iPhones in Q2 last year.  We'll have to see the numbers when they announce them in April.

    But here's the deal... iPhone sales will someday fail to surpass the previous year's sales.  No company can grow sales forever.  I know this... the fine folks at Apple know this... and Wall Street should know this.  Let's hope people don't lose their minds when that happens.  

    Apple will still sell an obscene amount of phones... highly-profitable phones at that.

    Meanwhile... some companies lose money on every phone they sell... and they don't even sell a lot of phones in the first place.
  • Reply 7 of 19
    FWIW, SEC rules dictate that AAPL cannot buyback shares 4 weeks prior up to 1 week after an earnings announcement. Since earnings will be announced on Jan 26, AAPL cannot buyback stock in the Dec 29, 2015 - Feb 2, 2016 timeframe.
    FWIW, SEC rules dictate that AAPL cannot buyback shares 4 weeks prior up to 1 week after an earnings announcement. Since earnings will be announced on Jan 26, AAPL cannot buyback stock in the Dec 29, 2015 - Feb 2, 2016 timeframe.
    I'm not sure that's what the SEC rules say.  I could be wrong but I did take a look at this about six months ago and I didn't see that specific constraint.  Certainly it can pre-schedule repurchases that fall into that timeframe, so maybe there's a rule about opportunistic open-market purchases.  And it can also use accelerated repurchase agreements that might have been put in place at attractive prices.  I'd be interesting to know whether Apple made any such moves to add such agreements when the stock dipped in August, which could still be playing out now at very attractive prices.
    Correction: 5 weeks prior to earnings release until 48 hours after. It's call a blackout period. Google it.
  • Reply 8 of 19
    ^^
    all of this is why relying on supply-chain noise is folly.  Apple frequently changes suppliers and I'm sorry but Wall Street analysts and their "supply-chain checks" don't know this. Any Apple supplier that wants to remain an Apple supplier is it going to leak data to analysts.
  • Reply 9 of 19
    mjtomlinmjtomlin Posts: 2,428member

    Let's hope people don't lose their minds when that happens. 

    Are you kidding? Look what happens on rumors alone. LOL  I'm sure the day Apple reports that they sold less than the previous year, investor suicide rates will skyrocket.

    But you are correct, it doesn't matter if iPhone sales go down, what's more important is overall revenue. Fiscal15 grew by 28% YOY which is an astonishing number for a company Apple's size. That was about a $50 billion gain in a single year!!! And AAPL continues to tank. It's unreal.
    palomine
  • Reply 10 of 19
    Besides other problems that DED has, the title is implies that Nikkei is wrong again. I wonder have you ever been wrong before, DED?

    Previous incorrectness doesn't indicate future incorrectness.

    You should state their incorrect approach for their prediction in the title rather than an implication without any evidence~
    freshmaker
  • Reply 11 of 19
    aircm1982 said:
    Besides other problems that DED has, the title is implies that Nikkei is wrong again. I wonder have you ever been wrong before, DED?

    Previous incorrectness doesn't indicate future incorrectness.

    You should state their incorrect approach for their prediction in the title rather than an implication without any evidence~
    Nikkei, NY Times, Digitimes and CNBC are always wrong about Apple. And 95% of analysts are always wrong about AAPL.
    So what exactly about this title confuses you ?
    ted13
  • Reply 12 of 19
    canukstormcanukstorm Posts: 2,485member
    On January 27, 2015... Apple announced they had sold 74.5 million iPhones during last year's Holiday quarter.

    On January 26, 2016... Apple will announce this year's Holiday numbers.

    Will they be higher or lower?

    If they are lower... then yes... sales are down.  But we won't know for a couple weeks.

    We should also keep an eye out for the April quarter results... since any reduction in production now will affect that quarter then.   Apple sold 61.2 million iPhones in Q2 last year.  We'll have to see the numbers when they announce them in April.

    But here's the deal... iPhone sales will someday fail to surpass the previous year's sales.  No company can grow sales forever.  I know this... the fine folks at Apple know this... and Wall Street should know this.  Let's hope people don't lose their minds when that happens.  

    Apple will still sell an obscene amount of phones... highly-profitable phones at that.

    Meanwhile... some companies lose money on every phone they sell... and they don't even sell a lot of phones in the first place.
    "the fine folks at Apple know this..."

    One would hope that this is the case.
  • Reply 13 of 19
    entropysentropys Posts: 2,970member
    I am not a fan of share buy backs.  At best they temporarily support the share price. At worst they waste money that could have been used for something productive.
  • Reply 14 of 19
    FWIW, SEC rules dictate that AAPL cannot buyback shares 4 weeks prior up to 1 week after an earnings announcement. Since earnings will be announced on Jan 26, AAPL cannot buyback stock in the Dec 29, 2015 - Feb 2, 2016 timeframe.
    FWIW, SEC rules dictate that AAPL cannot buyback shares 4 weeks prior up to 1 week after an earnings announcement. Since earnings will be announced on Jan 26, AAPL cannot buyback stock in the Dec 29, 2015 - Feb 2, 2016 timeframe.
    Correction: 5 weeks prior to earnings release until 48 hours after. It's call a blackout period. Google it.
    I think you are wrong. Apple has hired investment bankers to retire their shares. They can retire shares at ANY time. The blackout period refers to companies doing it themselves. 
    badmonk
  • Reply 15 of 19
    ac1234ac1234 Posts: 138member
    AI quote:  "...However, it's also of benefit to Apple's long term investors. That's because Apple is currently spending the already committed billions in its capital return program to buy back millions of shares at prices that are incredibly low. ..."

    This is pure FUD - please show the value to longterm stockholders !!!!  I am one of them and have ZERO benefit from this ill advised waste of money.
  • Reply 16 of 19
    On January 27, 2015... Apple announced they had sold 74.5 million iPhones during last year's Holiday quarter.

    On January 26, 2016... Apple will announce this year's Holiday numbers.

    Will they be higher or lower?

    If they are lower... then yes... sales are down.  But we won't know for a couple weeks.

    We should also keep an eye out for the April quarter results... since any reduction in production now will affect that quarter then.   Apple sold 61.2 million iPhones in Q2 last year.  We'll have to see the numbers when they announce them in April.

    But here's the deal... iPhone sales will someday fail to surpass the previous year's sales.  No company can grow sales forever.  I know this... the fine folks at Apple know this... and Wall Street should know this.  Let's hope people don't lose their minds when that happens.  

    Apple will still sell an obscene amount of phones... highly-profitable phones at that.

    Meanwhile... some companies lose money on every phone they sell... and they don't even sell a lot of phones in the first place.
    "the fine folks at Apple know this..."

    One would hope that this is the case.
    Well I hope Apple doesn't think they'll be able to grow their smartphone sales forever.  That's actually impossible.

    Everything has a limit.
  • Reply 17 of 19
    foggyhillfoggyhill Posts: 4,767member
    ac1234 said:
    AI quote:  "...However, it's also of benefit to Apple's long term investors. That's because Apple is currently spending the already committed billions in its capital return program to buy back millions of shares at prices that are incredibly low. ..."

    This is pure FUD - please show the value to longterm stockholders !!!!  I am one of them and have ZERO benefit from this ill advised waste of money.
    In theory, this means more present value for future profits per unit stock (if that actually mattered to Wall Street, it doesn't) : AKA stock price.

    But, I agree that in general that even if that were true, the usefulness is kinda dubious. Apple has to borrow to buy this stock back a big part of it, so it doesn't even reduce the big pile O cash that much.

  • Reply 18 of 19
    Analysts don't understand (or pretend not to understand) Apple's business model.

    They are all concerned about sales "peaking", but seem to disregard the basic fact that Apple has a loyalty of 95%.

    That means 95% of the installed user base will come back and replace their existing phones with a newer model. The big question is then, will we replace our phones every 2.5 or 3 years or what will that number be.

    You can play around with those assumptions, but Apple will continue to grow their iPhone revenue the next 5 years (until other product categories take over the growth).
    badmonk
  • Reply 19 of 19
    jonljonl Posts: 210member
    Correction: 5 weeks prior to earnings release until 48 hours after. It's call a blackout period. Google it.
    You should read radarthekat's correction of your post and pay attention this time. The blackout period is for opportunistic buyback. Previously scheduled buybacks proceed as scheduled.
    badmonk
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