Per a new report from DIGITIMES, demand for components that go into Apple's (AAPL +1.18%) iPhone X came in 30% lower than expected in November, with the publication's sources claiming that demand for such components is "likely to drop further in December." The publication cites "sources from the upstream component supply chain" for this information.
Apparently, demand for such components isn't as robust as expected, with shipments in November leading DIGITIMES' sources to worry that Apple "may reduce its iPhone X shipment target for the first quarter of 2018."
Image source: Apple.
DIGITIMES' sources added some additional color, claiming that iPhone X shipments in January and February will be similar to the levels seen in November, but that in March, shipments will drop so steeply that Apple will see a 30% quarter-over-quarter drop in iPhone X shipments during the first quarter of 2018 compared to the fourth quarter of 2017.
If this report is accurate, then that's a clear negative for Apple and its stock price, as it would indicate that demand for Apple's iPhone X -- the product that's expected to drive significant growth in Apple's iPhone shipments and revenue in the current year, with follow-on products helping to augment that growth in the following year.
Is it time for Apple investors to panic?
Not so fast
While this report seems bad, it's worth keeping in mind what Apple supplier Broadcom, which relies heavily on Apple for sales of components that go into smartphones, offered what seemed to be some good news for iPhone X sales momentum. Broadcom said that it saw a 33% jump in wireless component revenue in its most recent quarter thanks to an increase in dollar content within Apple's latest iPhones that was partially offset by sales declines to other smartphone vendors.
More importantly, though, Broadcom said that it expects sales of chips to Apple to grow quarter over quarter because demand from Apple that, in prior years would've been fulfilled during Broadcom's most recently reported quarter, was pushed out. For some perspective, see the table below for how Broadcom's wireless revenue trended in the same periods during the last product cycle versus how it's set to trend in the current one:
| Product Cycle | AVGO FQ4 Wireless Revenue ($millions) | AVGO FQ1 Wireless Revenue | QoQ Change in Wireless Revenue (%) |
|---|---|---|---|
| iPhone 7 | 1346 | 1175 | (12.7) |
| iPhone 8/X | 1796 | Up from FQ4 | Positive |
Source: Broadcom earnings reports.
Broadcom is going from what was a 12.7% quarter-over-quarter drop in wireless revenue last year to some amount of quarter-over-quarter growth -- which Broadcom didn't specify -- during this product cycle. That's a big deal. Moreover, during Broadcom's earnings call, CEO Hock Tan said that the company's visibility with respect to the Apple product ramp "has obviously become full -- crystal clear."
Broadcom's visibility comes from discussions with Apple. Indeed, Tan made a point of highlighting the fact that over 80% of the company's revenue comes from sales of product directly to customers rather than through third parties -- "distributors or middlemen" as Tan referred to them.
As of Dec. 6, 2017, Broadcom was expecting quarter-over-quarter growth in wireless chip revenue from Apple. It doesn't seem likely that things could've deteriorated as significantly as the DIGITIMES article indicates between Broadcom's Dec. 6 earnings report and the Dec. 8 publication of the article.
What to do now?
The most reliable source of information about how Apple's iPhone sales are trending is Apple itself -- but don't expect the company to reveal such information until it reports its financial results sometime in late January or early February. Your best bet, then, will be to wait for supply-chain reports from other, preferably reliable, sources. If a few reports from the likes of KGI Securities analyst Ming-Chi Kuo or Nikkei Asian Review surface confirm what DIGITIMES' sources claimed, then something might be going wrong.
I'll be keeping my eyes peeled, and will be sure to cover any such news that pops up.
