Apple iPhone 6: Ignore Today's 68 Million Number

Rumor has it that Apple has ordered up a boatload of iPhone 6 units. Should investors pay attention to this speculative figure, or ignore it altogether? Tim Cook votes for the latter.

Jul 10, 2014 at 7:45PM


iPhone 6 mockups. Source: 9to5Mac.

Another day, another rumor about Apple's (NASDAQ:AAPL) upcoming iPhone 6. The latest is from Taiwan's Business Weekly, which is making the rounds today. According to the report, Apple is betting huge on the iPhone 6, and has initially ordered 68 million units. That figure is purportedly twice as many units compared to the iPhone 5.

While Apple bulls like myself should love big figures like that, investors shouldn't put much weight into supply chain leaks of this nature. In fact, Tim Cook has directly advised investors not to pay attention to these types of rumors.

Stop me if you've heard this one before
Back in January 2013, the Wall Street Journal reported that Apple was cutting iPhone 5 orders from 65 million to 50 million. However, that 65 million figure was absurdly high to begin with. Still, that didn't stop the report from creating investor panic, as shares dropped on the news.

The reality is that Apple's global supply chain has countless moving parts and many vendors. It's not uncommon for one crucial ingredient to create production bottlenecks, particularly if that component involved an advanced new technology, and is still plagued with low yields. In 2012, this was the in-cell touch display in the iPhone 5. In 2013, this was the Touch ID sensor in the iPhone 5s.

As yields improve, Apple frequently adjusts its open orders at suppliers, and most of its orders typically cover up to 150 days. This paragraph is in every Apple 10-Q and 10-K:

These outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days. The Company also obtains individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. 

This is a possible explanation for why that 65 million figure from 2013 seemed so high. It's because Apple over orders when yields are low, and then reduces orders when necessary. Just like the old saying goes, Apple would rather have it and not need it than to need it and not have it. 

While there's a distinct possibility that the 68 million figure is accurate, that doesn't give investors much actionable information. Here's the Tim Cook quote from the conference call back in January 2013 directly addressing the WSJ speculation:

I would suggest it's good to question the accuracy of any kind of rumor about build plans and also stress that even if a particular data point were factual it would be impossible to accurately interpret the data point as to what it meant for our overall business because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supply performance can vary. The beginning inventory positions can vary, I mean there is just a long list of things that would make any single data point not a great proxy for what's going on.

To be clear, I do hope that Apple is preparing for a massive launch, as the expected move to larger displays will dramatically broaden Apple's addressable market considering the secular shift in consumer preference toward big phones. Rather, I'm just not going to pay attention to numerical supply chain leaks around possible Apple orders or build plans. That's Tim Cook's job.

Leaked: Apple's next smart device (warning, it may shock you)
The iPhone 6 isn't all Apple has up its iSleeve. Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information