Apple is reportedly cutting iPhone builds in the quarter ahead due to growing retail and carrier smartphone inventory levels, according to an analyst.
Jefferies analyst Peter Misek on Monday cut his iPhone estimates based on his checks in Apple's supply chain. Misek said that retail and carrier inventory levels are at about 10 weeks compared to the typical 4 to 6 weeks. He cut iPhone sales estimates in the September quarter to 27 million from 30 million. The December quarter iPhone unit estimate went from 50 million to 45 million.
Analysts are starting to fret iPhone sales because Apple's new device, an iPhone 5s or iPhone 6, won't land until the December quarter or late in the second quarter. Misek noted:
We had recently noted that smartphone inventory levels at retail and carriers were elevated but were unsure which OEMs were most exposed. Our survey of several hundred Orange, Vodafone, and EE stores in the U.K. indicates that inventories are elevated for iPhones and the Samsung Galaxy 3. On the supply chain side, Jabil reported a weak quarter for its Apple-exposed segments and guided the main Apple segment flat Y/Y for the Aug Q. Our checks also indicate that Apple's wafer starts at Samsung's Austin fab have likely been cut and that memory module makers have recently been reallocating orders in Q3 away from Apple and toward emerging market players.
Meanwhile, Apple hasn't started assembling the latest iPhone, but is likely to trial soon an iPhone 5s and a low-cost version of the device.
Add it up and Apple has a few tricky supply chain items to navigate. First, most smartphone buyers know a new iPhone is coming and won't buy an iPhone 5. Apple needs to generate sales of the iPhone 5 and keep inventory levels solid as it ramps production of its latest device. The biggest wild card may be overall smartphone fatigue. Misek noted the Samsung Galaxy S3 is struggling. The sales windows for new devices are getting smaller and the risk of being stuck with inventory appears to be rising.
Misek surveyed several hundred Orange, Vodafone and EE stores in the UK and found that retailers:
- Had more than five iPhone 5 16GB units 73.8 percent of the time.
- The 32GB iPhone 5 was out of stock 43.3 percent of the time. All retailers had plenty of iPhone 4S and 4 devices available.
- Retailers with the Samsung Galaxy S3 had plenty in stock, but few buyers. The Galaxy S4 was out of stock more than 95 percent of the time.
- For comparison, the HTC One was also in stock more than 98 percent of the time and Nokia's Lumia 920 was out of stock 84.3 percent of the time.