According to a new report from Nikkei Asian Review, a publication that has reported accurate Apple (AAPL +0.33%) supply chain information in the past, Apple will "halve its production target for the iPhone X in the three month period from January."
Apparently, when Apple launched the iPhone X, it had expected to need to produce 40 million iPhone X units during the time frame that the publication is talking about. However, thanks to "slower-than-expected sales in the year-end holiday shopping season in key markets," Apple is bringing that production target down to 20 million units.
Image source: Apple.
Fewer iPhone X sales, lower revenue
Apple generally provides financial guidance for just one quarter out; when Apple reports financial results for one quarter, it'll only tell investors what it expects to achieve in the following quarter. Apple doesn't provide guidance for the entirety of the fiscal year because of the unpredictability of new iPhone shipments.
That being said, investors and financial analysts spend a great deal of time and energy trying to develop estimates for Apple's financial performance over several quarters.
If the latest rumors are true, it won't show up in the results that Apple will report on Feb. 1 for its most recent quarter, which ended at the end of December. Instead, the risk is to the financial guidance that Apple will give for the January-March quarter as well as to analyst estimates for how Apple's business will perform during the rest of the current iPhone product cycle.
Apple iPhone sales only go down as a product cycle continues, so if the iPhone X is already seeing significant production cuts after being on the market for just a few months, investors should probably significantly temper their iPhone X sales expectations for the remainder of the current fiscal year.
Apple exec Phil Schiller. Image source: Apple.
Other iPhones won't save Apple
The iPhone X wasn't the only new iPhone Apple introduced in fall 2017. Apple also released the iPhone 8 and iPhone 8 Plus. The latter two devices were basically straightforward upgrades of the prior generation iPhone 7 and iPhone 7 Plus devices at lower prices than the iPhone X.
The iPhone 8 and iPhone 8 Plus are likely going to sell well -- they're iPhones, after all -- but there's really nothing about these devices that's likely to spur significant sales growth. Consumers seem to respond well to form factor changes, and the iPhone 8 and iPhone 8 Plus effectively look the same to customers. So, investors probably shouldn't expect sales of the iPhone 8 and iPhone 8 Plus to compensate to any great degree for any shortfall in iPhone X sales.
Foolish takeaway
Apple is likely to see modest iPhone unit shipment growth during the current product cycle as well as a reasonable degree of iPhone revenue growth since the iPhone X is priced significantly higher than its predecessors and makes up a significant portion of iPhone unit shipments. But things definitely don't seem to be going how Apple bulls, as well as Apple itself, had expected.
At this point, my expectations for the current iPhone product cycle are quite low and I'll be watching how the following iPhone product cycle -- which stands a good chance of being significantly more successful than this one is likely to be -- ultimately plays out.
