Story Stocks®
Updated: 10-Mar-21 12:29 ET
Apple reportedly cuts iPhone 12 Mini production, but story more benign than it first appears (AAPL)
At first glance, Nikkei Asia's headline that Apple (AAPL) is cutting iPhone 12 mini production for 1H21 looks like a concerning development for the tech bellwether. What immediately comes to mind is the possibility that the supply chain constraints that are impacting many chip makers could be filtering through to AAPL's production output.
Supply chain issues may be playing a role in a 1H21 production adjustment, but a closer look at the story reveals that AAPL isn't changing its FY21 iPhone production forecast of 230 mln phones, representing an 11.6% yr/yr increase. This takes much of the bite out of the scary looking headline, but there are some notable takeaways.
For instance, it does appear that AAPL overestimated demand for the iPhone 12 Mini as many customers instead opt for the older iPhone 11 model. Although all iPhone 12 versions are 5G-enabled, the current 5G capabilities are limited because the network is still being built out. This factor, combined with its larger screen, has made the iPhone 11 a better deal than the iPhone 12 Mini in the eyes of some consumers.
Most importantly, demand for other iPhone 12 models, including Pro and Pro Max, remains healthy. In fact, the report states that some components that were originally targeted for the Mini are now being reallocated to the other iPhone 12 models.
Another key point is that it's quite possible that AAPL purposely overestimated 1H21 production in order to ensure that its suppliers locked up enough components during this chip shortage. Late last year, AAPL told suppliers to plan for 96 mln phones built in 1H21. Now, the company reportedly expects about 75 mln units to be built in 1H21, which is still slightly above 1H20 levels.
Clearly, Wedbush isn't concerned about the situation, as the research firm just added AAPL to its "Best Ideas List." Indeed, a steep drop-off in demand would have been a very surprising development coming off AAPL's impressive Q1 report on January 27. For the quarter, iPhone revenue jumped by 18% to $65.6 bln, comfortably surpassing the $59.9 bln estimate.
If chip shortages persist into the summer months, then a potential risk could arise for AAPL. However, the current expectation in the semiconductor industry is that supply constraints will ease later this year. Therefore, we view today's AAPL news as mostly benign, with a very limited impact on its fundamental picture.
Supply chain issues may be playing a role in a 1H21 production adjustment, but a closer look at the story reveals that AAPL isn't changing its FY21 iPhone production forecast of 230 mln phones, representing an 11.6% yr/yr increase. This takes much of the bite out of the scary looking headline, but there are some notable takeaways.
For instance, it does appear that AAPL overestimated demand for the iPhone 12 Mini as many customers instead opt for the older iPhone 11 model. Although all iPhone 12 versions are 5G-enabled, the current 5G capabilities are limited because the network is still being built out. This factor, combined with its larger screen, has made the iPhone 11 a better deal than the iPhone 12 Mini in the eyes of some consumers.
Most importantly, demand for other iPhone 12 models, including Pro and Pro Max, remains healthy. In fact, the report states that some components that were originally targeted for the Mini are now being reallocated to the other iPhone 12 models.
Another key point is that it's quite possible that AAPL purposely overestimated 1H21 production in order to ensure that its suppliers locked up enough components during this chip shortage. Late last year, AAPL told suppliers to plan for 96 mln phones built in 1H21. Now, the company reportedly expects about 75 mln units to be built in 1H21, which is still slightly above 1H20 levels.
Clearly, Wedbush isn't concerned about the situation, as the research firm just added AAPL to its "Best Ideas List." Indeed, a steep drop-off in demand would have been a very surprising development coming off AAPL's impressive Q1 report on January 27. For the quarter, iPhone revenue jumped by 18% to $65.6 bln, comfortably surpassing the $59.9 bln estimate.
If chip shortages persist into the summer months, then a potential risk could arise for AAPL. However, the current expectation in the semiconductor industry is that supply constraints will ease later this year. Therefore, we view today's AAPL news as mostly benign, with a very limited impact on its fundamental picture.
