SMBC Nikko warns production of Apple Inc.’s (NASDAQ:AAPL) profit-driving “iPhone” devices will weaken further and the demand for its next “iPhone 7” will be sluggish. The news, the analysts said, could spell more trouble for AAPL stock.
“The Apple shock is continuing,” the brokerage said in a note to clients. “Based on our visit (to Apple suppliers in Taiwan), we think there are excess iPhone inventories and see potential for a second round of production cutbacks, which is a negative surprise.” (Source: “A New Apple Shock? SMBC Nikko Warns Of Another iPhone Production Cut,” Benzinga, February 22, 2016.)
In light of these conditions, SMBC cut its 2016 iPhone demand assumption units from 220 million to 190 million.
The brokerage said it believes inventories of current iPhone models stand at 50–60 million units and that these inventories are unlikely to be used up, even with sharp cutbacks to production in the January–March quarter.
“So we expect Apple to commence a second round of production cutbacks,” SMBC added.
SMBC Nikko said weak demand for current models, especially from China, is behind the inventory glut.
AAPL stock has skidded from its all-time high intraday price of $134.54 reached in May to a 52-week intraday low of $92.00 last month, an approximately 32% drop. The shares closed at $96.87 on Monday, down eight percent this year.
SMBC said it thinks the attraction of the iPhone 7, widely expected to be released this year, will be weak, as no major spec changes seem planned at present.
Analysts at the brokerage said that while dual-lens cameras are generating interest in the new model, they will only be adopted on one 5.5-inch model, not across the range.
Further, the number of lenses might be increased from five to six, slightly increasing the thickness of the lens module, according to the note.
The new model’s LCD panel and driver IC are also expected to be the same as the current model’s, the brokerage said.
Last month, the Cupertino, California-based company predicted that revenue for the January–March quarter would come in between $50.0 billion and $53.0 billion. That is down from the $58.0 billion in revenue Apple booked during the year-earlier period. That would also mark the first year-over-year revenue decline for AAPL stock in the last 13 years.