Apple shares skid on report of iPhone X production cut

Apple Inc. will halve its iPhone X production target for the first three months of the year to around 20 million units, Nikkei reported, sending its shares down on Monday.
People try out an Phone X during a media event at Apple's new headquarters in Cupertino, Calif., in this Sept. 2017 photo. (JOSH EDELSON/AFP/Getty Images)

Apple Inc. will halve its iPhone X production target for the first three months of the year to around 20 million units, Nikkei reported on Monday, sending its shares down two per cent.

The report added to growing concerns around weak sales of the $999 US phone, which starts at $1319 in Canada, making investors jittery about the company's financial outlook when it reports first-quarter results on Thursday.

Apple's shares fell to their lowest level in 2018, knocking off $14 billion US from the company's market value. The company declined to comment.

Analyst Toni Sacconaghi of Bernstein cut both his second-quarter and full-year forecasts for iPhones but said he did not expect Apple's 2018 profit to fall steeply because of changes to U.S. tax law that will bring the company's rate down to 18 percent.

"Apple earnings should handily beat December quarter expectations, but March guidance could moderately disappoint," UBS analysts said.

The production cut was prompted by slower-than-expected sales in the holiday shopping season in Europe, the United States and China, the Japanese newspaper reported, without citing a source. 

IPhone X was the first phone to sport a new design since the launch of iPhone 6 in 2015 and many expected it to lead to blockbuster sales, dubbed by Wall Street analysts as "supercycle".

"This was supposed to be the supercycle year and if Apple hasn't been able to drive substantial unit growth this year, then that makes you little cautious on future iPhone cycles," Atlantic Equities analyst James Cordwell said.

Several analysts have lowered their estimates for iPhone X shipments in the past few weeks, citing high price of the device among other factors, with at least three downgrading their rating on the stock.

Adding to the concerns, Verizon Communications Inc said last week their postpaid device activations were lower than last year as people were keeping phones longer.

A survey of people planning to buy the iPhone showed that the percentage of them looking to buy the iPhone X has dropped to 37 per cent from 43 per cent in an earlier survey, UBS analysts wrote in a note on Monday.

The iPhone X, which features an edge-to-edge display and facial recognition technology to unlock the phone, went on sale in November in the United States.

Asian supply chain checks suggest that iPhone X orders have been weakening recently, with first-quarter production likely to be about 20 million units, JP Morgan analyst wrote in a note dated Jan. 24.

Quite a few of Apple's iPhone parts suppliers are based in Asia. Shares of Foxconn, one of Apple's main suppliers and formally known as Hon Hai Precision Industry Co Ltd, fell 0.7 per cent on Monday.

Canaccord Genuity analysts have lowered their second-quarter iPhone shipment estimates to 59.9 million units from 66 million units, citing their own survey.

"Our survey work indicates iPhone X sales were strong during the December quarter but sales appear slower in January, more in line with normal seasonal trends," they wrote in a note.

Apple was not immediately available for comment.

Shares of U.S.-listed Apple suppliers such as Micron Technology Inc edged lower following the report.