Is the iPhone falling out of style? Initial sales reports for the iPhone 5 appeared positive, with 2 million preorders in the first 24 hours following its announcement last September. But the forecast has since changed. Sales numbers after the initial push weren’t as strong as analysts originally thought, which caused the Apple stock to tumble in mid- to late-December. The latest tumble, which sent the stock to below $500 in pre-bell trading, further suggests lackluster sales.
According to Reuters, Apple has called many of its suppliers and had them halve orders for the January through March period. That means cutting estimates from 65 million iPhones produced to just over 30 million. While 30 million iPhones might seem like a lot to you and me, it apparently is not standing up with Apple’s previously heavy production totals. Does this put a damper on the future of the iPhone?
Apple took plenty of grief in the weeks, and then months, following the iPhone 5 announcement. While consumers generally embraced the larger screen, some thought it not large enough to keep up with the current oversized smartphone trend. It also added very few new features to the table; even the new iOS 6 provided only incremental improvements over iOS 5, with a few new bells and whistles attached.
In addition to the initial disappointment, which led many consumers (including your humble author) to seek Android alternatives, there was the whole Maps debacle. Apple has since rectified the situation, allowing Google Maps into the App Store, and that PR disaster does appear to be behind them. But with that wave of disappointment, combined with the initial wave, Apple could face some relatively lean times ahead.
It seems that Apple has taken some previously unthinkable measures to increase iPhone 5 sales. In December they reduced the price of iPhone 5 units sold in Walmart stores to $127. Even now they’re listed at $187. (Other retailers, such as Best Buy, continue to sell for the full $199 price.) While those kinds of deals might have improved holiday sales numbers, they won’t do much in the first quarter.
Two other factors play a part in Apple’s production cut. There is Samsung, which has sold 40 million of their Samsung Galaxy S III smartphones, and 100 million Galaxy S phones since the original in 2010. Samsung is also gearing up for a fourth edition to the series, which could further hamper iPhone sales. Samsung did a good job marketing the Galaxy S III during Apple’s launch phase, and could really cut into Apple’s market if they get the Galaxy S IV into the market place six or so months ahead of the next iPhone.
Another factor is the U.S. economy. While it has seen worse times, taxpayers just saw a small but significant tax increase, thanks to the end of a tax holiday. It might not be much, but any hike in taxes — resulting in a noticeable difference in paycheck amounts — can cause consumers to cut back on spending. Since many iPhone customers are upgrading old iPhones, and since the old iPhones are perfectly adequate, many might choose to hang onto their current models for now.
Finally, it’s easy to draw further speculation from this. Perhaps Apple is planning an iPhone release in the first half of 2013, to help combat the Galaxy S IV. While the S IV will certainly beat any new iPhone to the market, Apple might want to announce its new iPhone earlier, so Samsung doesn’t have a six-month head start. Again, that’s complete speculation, but it’s certainly possible.
Even amid bad news, it’s tough to predict long-term poor performance for Apple. There are numerous reasons why they might have cut production for the first quarter of 2013, and some of them might lead to positives. Still, the news is at least a little concerning in the short term.
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