Over the past few days, we’ve been inundated with reports surrounding what appears to be a lower than expected demand for the iPhone XR. Indeed, a number of investment firms have slightly lowered their price targets for Apple shares amidst reports that Apple recently reduced orders for iPhone XR components from suppliers. Bolstering this aura of pessimism around the iPhone XR are reports that some of Apple’s supply partners are anticipating less revenue for the quarter than initially expected.
Consequently, shares of Apple have taken quite a tumble over the past few days. Though the stock was trading at around $232 early last month, shares are now trading in the $191 range. Notably, we’ve seen this story play out many times before in the past. Specifically, we’ve seen how putting too much of an emphasis on supply chain reports can often paint an inaccurate picture regarding the current state of Apple’s business. The reason behind this is that Apple’s supply chain is far more vast and a tad more complex than other companies, if only due to the sheer scale that Apple operates on.
Touching on this point, Ben Bajarin of Tech.pinions recently wrote an interesting piece highlighting why reading too much into supply chain rumors and supply chain financial reports from individual firms isn’t often as instructive as one might normally think.
As Bajarin notes, Apple needs to be able to “respond to waves of demand and other market changes in real-time.” In turn, this is “why we get a range of supplier reports where one quarter an Apple supplier has a huge quarter, and in the same quarter, another supplier will suggest a decline.”
What’s more, Apple has historically preferred to rely upon multiple suppliers for components as a means to ensure a steady supply if one supplier happens to have lower than anticipated yields. To this point, Tim Cook in the past has said that reading too much into a reduction in component orders from a lone supplier is far from helpful.
“I suggest its good to question the accuracy of any kind of rumor about build plans,” Cook said back in 2013. “Even if a particular data point were factual, it would be impossible to interpret that data point as to what it meant to our business. The supply chain is very complex and we have multiple sources for things. Yields can vary, supplier performance can vary. There is an inordinate long list of things that can make any single data point not a great proxy for what is going on.”
Further, you might recall all of the gloom and doom reports we saw earlier in the year regarding an alleged drop in iPhone X sales. Those reports, as we’ve since come to find out, were anything but accurate. Additionally, you might recall a report that Apple this summer reduced iPhone component orders by as much as 20%. And what happened when Apple posted its earnings report a few weeks back? iPhone sales remained steady while profits jumped up by 29%.
Now is it still possible that iPhone XR sales are a bit slow? Of course. But I’m not exactly sure why that seems to be sounding off alarm bells when sales of pricier iPhone XS models appear to be strong enough as to offset any current weakness in iPhone XR sales.
At the end of the day, Apple’s ability to generate a profit is what matters, not how many units they sell of any one particular iPhone model.
