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Will iPhone Sales Return to Growth Later This Year?

By Daniel Sparks - May 23, 2016 at 5:30PM

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While investors are fretting about declining iPhone sales, is Apple planning for its biggest iPhone launch ever?

Apple (AAPL 1.62%) has ordered record production of its newest iPhone model from suppliers, according to Economic Daily News (via 9to5Mac). While investors should take Apple supplier rumors with a grain of salt, the order is notable if it's true; with iPhone sales declining year over year recently, an order of this magnitude could suggest the iPhone maker is planning for a smartphone comeback.

But is the rumor worth listening to?

iPhone 6s. Image source: Apple.

The big order

Apple ordered 72 million to 78 million iPhone 7 devices, according to Economic Daily News. This is "significantly above analyst estimates," noted 9to5Mac's Benjamin Mayo, suggesting management is anticipating a big cycle for the iPhone 7.

Usually launching its new flagship iPhone in the second half of September, early production orders could preview what management is expecting from sales in late September and in its fiscal first quarter, which begins in October. For some context, Apple sold about 74.8 million iPhone units in the first fiscal quarter of 2016, and 74.5 million units in the first fiscal quarter of 2015. These figures, of course, represent iPhone sales -- not orders from Apple to its suppliers; but reviewing them provides some insight into how meaningful an order of this magnitude really is, if the the order is legit in the first place.

But even if this is a real order from Apple, is it worth reading into? While the news is interesting, it would be wise for investors not to give Apple supply chain rumors like these any weight. Apple CEO Tim Cook has warned investors in the past of relying on reports like this one from Economic Daily News, explaining that they are "not a great proxy for what's going on."

Perspective for investors

While it might be useless to dissect Apply supply-chain rumors like this one, investors don't have to feel as if they're completely in the dark when it comes to the health of the company's important iPhone business. Investors can glean some useful context from available information on unit sales history, as well as from recent commentary from Cook on who's buying iPhones.

iPhone 6 and 6 Plus. Image source: Apple.

Perhaps the most concrete evidence suggesting Apple's iPhone business is doing just fine is simply a 10,000-foot view of sales trends. Investors should realize that while iPhone unit sales were down 16% year over year, in Q2, they were up 17% from levels just two years ago. One of the key reasons for year-over-year declines in iPhone sales this year, therefore, is simply a tough comparison of a monstrous iPhone 6 cycle last year. The iPhone is still clearly doing very well, as evidenced by how much higher sales are than they were two years ago; it simply isn't living up to the iPhone 6 cycle.

Second, while Cook is obviously prone to bias when it comes to estimating the potential of Apple's iPhone business, the CEO did recently provide a solid list of reasons the important segment is still healthy, including a high switching rate from Android and other operating systems, and a large number of first-time smartphone buyers who are choosing iPhone.

Apple's iPhone business, therefore, could return to growth later this year, as these supply rumors suggest. But it's public information and commentary provided directly from Apple that makes the best case for this outcome -- not dubious supply-chain rumors.

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