Apple To Cut iPhone X Output Apple Slices Plans for iPhone X -- WSJ

By Yoko Kubota in Beijing and Tripp Mickle in San FranciscoFeaturesDow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 31, 2018).

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 a 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%.

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

Investors have been betting that the iPhone X would drive a resurgence in Apple's smartphone sales this year, and that its lofty price -- it starts at $1,000, about 50% more than previous models -- would give a further boost to revenue. The iPhone X production cuts for the March period have raised investors' concern that sales could fall short and that average selling prices for the iPhone, a much watched metric, could also lag behind expectations.

Apple's stock fell 2.1% Monday after the production cutback was reported by Japan's Nikkei newspaper, and a further 0.6% Tuesday. The shares are off 5.7% since Jan. 22.

Launched a decade after Apple's first 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 high in hopes of boosting revenue and preserving margins on a device that features more expensive components. 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.

Those early delays were exacerbated by a shortage of certain components used in the facial-recognition system. Sales of the iPhone X didn't begin until Nov. 3, much later than usual for Apple's new models, shortening the critical retailing window ahead of the holiday shopping season.

Some consumers have said they don't believe the features justify the iPhone X's high price. "People love Apple, but they still have limitations," said Kylie Huang, a Taiwan-based analyst at Daiwa Capital Markets covering the Apple supply chain.

Further complicating things, Apple for the first time last year released three new devices, meaning the iPhone X competed for sales with the iPhone 8 and iPhone 8 Plus. Those two devices, which start at $699, are pricier than predecessors but offer a less-costly alternative to the iPhone X.

Instead of the iPhone X or iPhone 8, though, some customers have turned to older, less-expensive 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.

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 reduction 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 crucial Apple suppliers. Still, sales of the pricier iPhone X, iPhone 8 and 8 Plus are expected to lift the average iPhone selling price and boost revenue from the same period a year earlier.

Sanford C. Bernstein & Co. analyst Toni Sacconaghi this week cut estimated iPhone shipments in the March quarter to 53 million units, down 20% from 66 million a year earlier, but raised the average selling price to $767, up 17%.

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

(END) Dow Jones Newswires

January 31, 2018 02:47 ET (07:47 GMT)