Apple drops to 11-month low on reports of iPhone production cuts

Apple Inc. declined to the lowest price in almost a year after the Nikkei newswire reported that the company curbed iPhone production on weak demand.

The stock fell 3.1% to $504.25 at 9:39 a.m. in New York, and earlier touched $498.51 for the lowest intraday level since Feb. 16. Through Jan. 11, the stock had lost 26% from a record high in September.

Apple, based in Cupertino, California, reduced its original target to order 65 million iPhone 5 displays this quarter by about half, Nikkei said, citing an unidentified senior executive at a component maker it didn’t name. IPhone sales are slowing because smartphones have saturated developed markets, where Apple is strongest, said James Cordwell, an analyst at Atlantic Equities Service in London.

“We’re getting close to saturation,” said Cordwell, who rates Apple shares “overweight” and doesn’t own any. “The real growth is going to come from emerging markets, and Apple’s share in emerging markets is much lower than it is in other markets at the moment due to such high prices.”

Bethan Lloyd, a spokeswoman for Apple in the U.K., didn’t immediately return calls seeking comment. Among Apple suppliers in Asia, representatives from Sharp, Japan Display and Hon Hai declined to comment.

Apple is facing increasing competition from manufacturers using Google Inc.’s Android software, including Samsung Electronics Co. Android phones are gaining users in emerging markets because they are cheaper than the iPhone.

‘Fashion Fatigue’

“The iPhone is no longer unique, fashion fatigue will transpire and the rich price premium will be impossible to sustain,” Per Lindberg, an analyst at ABG Sundal Collier in London, wrote in a research report today.

In emerging markets, there is also more room for smartphone sales to increase because the devices are gaining market share from more-basic handsets. In developed markets, about 75% of handsets sold already are smartphones, Cordwell said.

First-quarter iPhone shipments may decline 25% from the previous period, Peter Yu, an analyst at BNP Paribas, said today in a note. Analysts’ average second-quarter revenue estimate for Apple may drop by about $4 billion to $5 billion and the earnings-per-share projection may decline by $1 to $1.50, Abhey Lamba, an analyst at Mizuho Securities USA, said in a report.

Steven Milunovich, an analyst at UBS AG, reduced his iPhone sales estimates in December due to reports of a 30%  production cutback in Asia, he wrote in a research report today.

“Order cuts appear to be old news,” he said.

The iPhone may be facing supply chain constraints as Apple shortens its product cycle to introduce new models more frequently, Walter Piecyk, an analyst at BTIG LLC, said in an interview.

“It takes a manufacturer time to do it efficiently,” he said. “An iPhone sold in the March quarter is more profitable than an iPhone sold in the December quarter.”

Bloomberg News

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