Citigroup analyst Glen Yeung claims that iPhone production has improved and as a result Apple has cut back orders from its suppliers. Yeung's concern is that the reduction in orders with Apple's suppliers appears to suggest that iPhone 5 demand is not as high as expected. If demand was high then Apple would have to keep iPhone 5 production going at full speed; the fact that it appears to be taking its foot off the the accelerator suggests demand is not so great.
Yeung claimed his checks suggest Apple has seen a "45-50% increase in monthly iPhone 5 production output October to December". Yeung added that this increased yield was "faster than expected" based on his "discussions with various points in the supply chain".
Yeung also speculates that a reduced time between product introductions may also cause supply-chain disruption. "We see execution risk for Apple as it decreases the time between new product introductions on larger volumes each time," he said, according to Forbes report.
As a result of his belief that reduced orders indicate that iPhone 5 sales will not be as strong as he expected, Yeung has cut his rating on the stock to Neutral from Buy, with a new target of $575 (it was $675). This has hurt a number of Apple's suppliers: Broadcom's share price is down 3.13%, Qualcomm dropped 4.7%. Other Apple suppliers, Cirrus Logic and Jabil Circuit also saw their shares fall in value during early morning trading, writes Reuters. Hon Hai Precision Industry Co tumbled the most.
Yeung also notes a survey that found that over half of consumers prefer screen larger than 4.1 inches, "putting iPhone 5 at a disadvantage."
Yeung isn't the only analyst noting reduced supply chain orders. UBS analyst Steven Milunovich also noted that his supply chain checks indicate that "the iPhone build rate is falling". He claims that it will fall to 25mn units for the March quarter. UBS reduced its price target on Apple stock from $780 to $700, due to concerns about lower iPhone and iPad shipments.
Jefferies analyst Peter Misek also notes that Apple has "started cutting orders to suppliers to balance excess inventory". Misek claims iPhone orders have been dropped to 25-30 million for the March quarter, down from the 35-40 million range, according to Forbes.
Misek claims that Apple has cut its component orders because it over-ordered for this quarter, writes Business Insider.
Misek has reduced his iPhone shipment estimate for the first quarter of 2013 to 48 million, down from 52 million, Reuters reports.
Fubon Financial Holding Co analyst Jeff Pu is also cautious about Apple's supply chain, noting "weaker than expected demand". He said: "We are turning cautious on Apple supply chain, as we believe we are at the peak of many product cycles."
Sign up for Computerworld eNewsletters.