Apple to Curtail iPhone X Production in the Face of Weak Demand

By Yoko Kubota in Beijing and Tripp Mickle in San Francisco Features Dow Jones Newswires

Apple Inc. is slashing planned production of the iPhone X for the three-month period ending March 31, people familiar with the matter say, in a sign of weaker-than-expected demand for the pricey handset.

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Apple plans to make about 20 million iPhone X handsets in the first quarter, down from roughly 40 million initially planned, according to one person with knowledge of Apple's production goals. Other people familiar with the iPhone supply chain said Apple had cut orders for components used in the iPhone X by 60%.

"They always do this when things aren't selling well. It's a real headache," one of the people said.

Apple declined to comment. The company will offer its first report on iPhone X sales when it reports earnings Thursday for the three months ended December. Analysts expect the company to report total iPhone shipments--including sales of iPhone 6, 7 and 8 series models--increased 1.5% during the period.

Launched on the 10th anniversary of Apple's game-changing iPhone, the iPhone X was promoted as the smartphone of the future, with features including a sharp, organic light-emitting diode display and facial-recognition technology. Apple set the price at $1,000--despite a plethora of lower-priced rivals--in hopes of boosting revenue.

But troubles incorporating the new technology led to delays in the manufacturing process, and forced Apple to abandon the use of fingerprints as an option to unlock the phones.

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Those early delays were exacerbated by a shortage of certain components used in the facial-recognition system. Sales of the iPhone X were pushed back until Nov. 3, shortening the critical retailing window ahead of the holiday shopping season.

Then there is the $1,000 base price--many consumers don't believe the features justify spending that much money, some analysts say.

"They need to adjust their attitude to consumers," said Kylie Huang, a Taiwan-based analyst at Daiwa Capital Markets covering the Apple supply chain. "Consumers are not stupid. People love Apple but they still have limitations."

Apple Inc.'s shares closed down 2.1% on Monday, compared with a 0.5% decline for the tech-heavy Nasdaq index, after news of the production cutback was first reported by Japan's Nikkei newspaper.

Instead of the iPhone X, some customers have turned to older, cheaper models such as the iPhone 7 and 7 Plus, said Canalys analyst Nicole Peng. She said that wasn't necessarily a bad thing for Apple, noting that the older models are cheaper to produce and generate relatively high margins per unit.

"Apple doesn't need to rely on one model to perform very well to be able to achieve the financial results they are aiming at," Ms. Peng said.

To be sure, not all suppliers face the same level of order cuts because of different manufacturing demands for components. Murata Manufacturing Co., a Japanese iPhone X component supplier, suggested its cut wasn't as severe as some others.

"The figure sounds a little bit bigger," a Murata representative quoted Vice Chairman Yoshitaka Fujita as saying on Tuesday when asked about the Nikkei report. "But we know that there are talks of cuts."

Analysts have already started lowering their iPhone shipment expectations for the current quarter, pointing to weaker business results from key Apple suppliers.

Write to Yoko Kubota at yoko.kubota@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

January 30, 2018 06:49 ET (11:49 GMT)