Apple has slashed orders for iPhone screens in the first quarter by half, according to Monday reports out of both Japan and the U.S.
Earlier today, Japan's Nikkei and the U.S.-based Wall Street Journal (subscription required), both citing unnamed sources, claimed that iPhone display orders had dropped to about half what Apple had previously planned for the quarter ending March 31.
Suppliers were notified of the cuts last month, according to the Wall Street Journal, and the scale-backs involved other components beside screens.
Investors interpreted the reports as bad news -- that Apple expects iPhone sales will dramatically slow -- and pushed the company's stock price down 3.4%, or nearly $18, to $502.50, by 1:30 p.m. ET.
Some analysts were skeptical of the reports, considering other evidence -- including an iPhone sales record by AT&T in the fourth quarter -- that pointed to the contrary.
"Anything is possible, but [the reports] are not consistent with other evidence coming in," said Ezra Gottheil, an analyst with Technology Business Research.
Even so, Gottheil offered explanations for the cutbacks, assuming they have occurred. "Other smartphone companies have caught up [to the iPhone] in performance and design in their new devices," Gottheil said. "Competing products are relatively stronger than they were two years ago."
Darren Hayes, an assistant professor at Pace University's Seidenberg School of Computer Science and Information Systems in New York, put more credence in the reports, and echoed Gottheil's rationale for the falling orders.
"Given the recent numbers of the Galaxy S III, Samsung is a serious competitor, so I'm not surprised that some of the initial hype over the iPhone 5 has dissipated," said Hayes in a Monday interview. "The Galaxy is a trendy phone for young people, and I see lots of students buying these."
Today, Samsung announced that it had sold 40 million Galaxy S III smartphones since the device's May 2012 launch, and more than 100 million Galaxy S-series handsets since 2010.
Hayes also ticked off some of the familiar knocks against Apple's business model, ranging from its intransigence over high carrier subsidies and the Maps debacle to its habit of upgrading the iPhone annually, saying that those decisions have come home to roost.
"This may be a long-term issue for Apple," argued Hayes. "Apple hasn't changed the iPhone as dramatically as we're used to seeing, but instead [has] made only small changes to its functionality."
As an example, Hayes cited Near Field Communications (NFC), a technology that Apple has yet to apply to the iPhone, while Samsung has made much of it in advertising campaigns, showing users transferring data simply by touching their phones together.
Other analysts were, like Gottheil, skeptical of the order downsizing. Brian White, of Topeka Capital Markets, one of Wall Street's most bearish on Apple, said in a research note last week that his "Apple Monitor," an index of Taiwanese component makers that derive more than half of their revenue from sales to Apple, was down sequentially just 3% in December, significantly less than the seven-year average of 11% for that month.
"In our view, the upside in the Apple Monitor is driven by the strongest new product ramp in Apple's history, with 80% of December quarter sales from new product launches," White wrote to his clients.
White's forecast for iPhone sales during the quarter that ended Dec. 31, 2012, is 43 million, which would be a record, and 40.1 million for the April-June quarter. Others on Wall Street have pegged fourth quarter 2012 sales as high as 50 million units.
Apple will release earnings for the fourth quarter on Jan. 23, when it will disclose iPhone sales for the period and as it has in the past, provide general information on its existing inventory.
Just don't expect CEO Tim Cook to divulge whether the company's cut iPhone component orders, said Gottheil.
"Under Cook, Apple has been more aggressive about ordering," said Gottheil in another explanation for the downturn. Historically, Apple has had ongoing -- and at times long-running -- problems producing enough iPhone to meet demand. "Maybe they've hit the other side of that now. And maybe that's why they've been able to fill the pipeline so well for the iPhone 5."
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is [email protected].
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