Apple Cuts Orders for iPhone Parts

Apple Inc. AAPL -3.57% has cut its component orders for the iPhone 5 because of weaker-than-expected demand, people familiar with the situation said Monday, indicating sales of the latest smartphone haven't been as strong as anticipated.

Apple's orders for iPhone 5 screens for the first quarter, for example, have dropped to roughly half of what the company had planned to order, the people said.
The Cupertino, Calif., company also cut orders for components other than screens, one of the people said.

Customers stood outside a KDDI Corp. outlet prior to the launch of the Apple Inc. iPhone 5 in Tokyo in September.

Apple cut orders for iPhone 5 components on lower-than-expected demand. The WSJ's Juro Osawa talks about whether sales of Apple's latest smartphone are slowing. 

Apple has set the agenda for the smartphone market since it released its first iPhone in 2007.
But South Korea's Samsung, which sells Android-based models at various price points, has overtaken the U.S. company as the world's largest smartphone vendor by market share. Demand also is growing for inexpensive smartphones from Chinese makers such as Huawei Technologies Co.
While the popularity of iPhones and iPads has been boosting Apple's earnings and investors' expectations over the past few years, there have been concerns in recent quarters about how long the growth can continue. Apple's stock, which peaked at about $705.07 in September, was down 3.2% at $503.70 in midday trading Monday in New York.

Apple held 14.6% of world-wide smartphone shipments in the third quarter, down from a peak of 23% in the fourth quarter of 2011 and the first quarter of last year , according to IDC.
Samsung's market share, meanwhile, rose to 31.3% in the third quarter, compared with 8.8% in the third quarter of 2010. The Korean company said this month that it expects to report another record operating profit for the fourth quarter of last year, capping its best year ever amid strong sales of its Galaxy line of smartphones. The company expects an operating profit of between $8.1 billion and $8.5 billion for the quarter.

Analysts continue to cite multiple explanations for a potential trim to orders unrelated to demand, including the ebb of flow of Apple's supply chain and a strong holiday quarter.
Brian Blair, an analyst with Wedge Partners, says order cuts are typical after the holidays. He also noted that Apple uses multiple suppliers for individual parts making across the board cuts difficult to assess.

He estimates that Apple, which reports earnings for the December quarter on Jan. 23, sold 50 million iPhones during the quarter, ahead of average analyst estimates around 47 million.
Sanford Bernstein analyst Alberto Moe, said Apple may have made particularly large iPhone 5 orders to suppliers for the fourth quarter because of earlier concerns about manufacturing difficulties with some components such as screens.
Citigroup C -0.28% last month lowered its rating for Apple to "neutral" from "buy," citing concerns about cuts to iPhone orders. The brokerage noted that a sharp increase in iPhone 5 production during the fourth quarter may have left Apple with more inventory than expected. Still, it also said that "good not great" demand is likely a factor behind the order cuts.
"It is unlikely that Apple is cutting orders in a 'great' demand environment," Citigroup analysts said in the Dec. 16 report.
The iPhone 5, released in September, represents Apple's effort to maintain its strong position amid intensifying competition. The model comes with a longer, four-inch screen than the 3.5-inch screens in previous iPhone models.
Japan's Sharp Corp., 6753.TO +12.63% Japan Display Co. and South Korea's LG Display Co. 034220.SE -2.20% are the three suppliers of the screens, according to people with knowledge of the matter. When the iPhone 5 was introduced, there were concerns that suppliers might not be able to produce enough to keep up with demand.
Apple's cut in orders may affect first-quarter sales of component makers, some of which are largely dependent on the U.S. company. The fact that some iPhone components are highly customized makes it difficult for suppliers to find alternative buyers in a short time frame. Sharp, one of the screen suppliers, has been struggling with a cash crunch and losses from its television-set operations.
Japan's Nikkei reported Monday that Apple has slashed its orders for iPhone 5 components.