Nikkei Asian Review, a publication that has accurately reported information about Apple (NASDAQ: AAPL) iPhone production changes in the past, said in a recent report that the company is planning to cut production of its latest iPhone, the iPhone X, by half in the quarter beginning in January.
The production cuts, it reported, are apparently driven by weaker-than-expected demand for the iPhone X in "key markets such as Europe, the U.S. and China."
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The iPhone X is unique within Apple's iPhone lineup in part because it uses a display technology known as an organic light emitting diode, or OLED. OLED offers picture quality and speed benefits over the liquid crystal display (LCD) technology used in all other iPhones, but comes at a higher cost.
Per Nikkei Asian Review, "the lackluster sales [of the iPhone X] could result in a delay to the company's plans to introduce OLED screens in other [iPhone] models."
The report also says that "Apple is believed to have started considering an increase to [the] proportion of liquid crystal display iPhone models by reducing production of the OLED-screen models scheduled for release this year."
While I think there is likely to be some truth to the latter assertion, I don't think that supposedly poor iPhone X sales will ultimately delay the introduction of new iPhone models with OLED displays. Here's why.
Clearing up the confusion
For some context, Apple is expected to launch three new iPhones later this year. One, a cost-sensitive device targeted at the mass market, is expected to use a 6.1-inch LCD while the other two are expected to use 5.85-inch and 6.46-inch OLED displays, respectively.
I don't think the sales performance of the iPhone X is going to lead Apple to, at the last minute, change the configurations of the devices that it releases later this year. Two premium models with OLED displays and one mass-market model with an LCD makes quite a lot of sense.
What I think the purportedly disappointing sales performance of the iPhone X could do is lead Apple to change its expectations around the sales mix of its upcoming trio of iPhones.
Indeed, KGI Securities analyst Ming-Chi Kuo, a respected Apple analyst, thinks that 50% of the shipments of the new iPhones that Apple plans to introduce in the fall will be made up of the 6.1-inch LCD iPhones. This leaves the new iPhone X and its larger counterpart splitting the remaining 50% of new iPhone shipments.
On top of that, Apple is likely to continue selling its older iPhone models except for the current iPhone X during the coming product cycle. All of those devices use LCDs, so it would seem that Apple will continue to sell more iPhones with LCDs than it will iPhones with OLEDs in the coming year and a half.
It's not surprising, then, for Apple to revise up its estimates of LCD-equipped iPhone shipments for the coming cycle and, correspondingly, revise down its estimates of OLED-equipped iPhone shipments during that same time.
In other words, Apple is likely merely adjusting its component procurement and device production plans based on how the current iPhone product cycle is going.
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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
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