This week The Wall Street Journal reported that Apple (NASDAQ:AAPL) is telling its manufacturing companies to produce a record number of its next generation iPhones -- to the tune of 85 million to 90 million by the end of the year. That's quite a large number considering the company sold 74.5 million iPhones in its current record sales quarter, fiscal Q1 2015.
This means Apple's gearing up for what it thinks will be another huge launch for its next versions of the iPhone this fall, followed by a stellar holiday sales season. But Apple's not being pretentious here. I think the company is focusing on a few logical reasons for placing such a big iPhone order.
Matching production with demand
Last year, when Apple first introduced its larger iPhone 6 and 6 Plus, the company had a few minor problems meeting demand. After the devices went on sale for preorder in September, the iPhone 6 Plus shipped up to four weeks after a customer made their purchase. With any new product launch, a little bit of wait-time is generally expected, but Apple likely doesn't want to repeat this problem again.
We need to look no further than Samsung's (NASDAQOTH:SSNLF) recent production issues to see how important it is to get the numbers right. The world's largest smartphone maker just reported that its operating profits fell once again in the most recent quarter, this time in part because Samsung overestimated demand for the S6 and vastly underestimated demand for the S6 Edge. That lead to a glut of S6 phones and left consumers waiting for the curved S6 Edge, which lead to poorer sales numbers.
Apple's all-important Chinese smartphone market is on fire
Apple said back in April that iPhone sales in the Greater China region (which includes mainland China, Hong Kong, and Taiwan) have surpassed sales in the U.S., and that revenue in the country is now larger than in Europe. In the quarter ending in March, iPhone unit sales were up 72% year over year.
Piper Jaffray analyst Gene Munster said in a research note a few months ago that, "We believe the China growth story will continue, despite recent changes from the Chinese government that added Apple to its 'do not purchase' list."
Apple CEO Tim Cook has also said that Apple's developer community in China is growing. He said back in April that, "The Chinese developers are coming on in significant numbers," and that there is "enormous momentum" building in that community. And as anyone from the Microsoft community will tell you, you need to have a strong developer community creating apps in order to drive phone sales.
Samsung's sales are stalling
This week, Samsung announced that its operating profit fell by 4% in Q2, bringing the seventh consecutive quarter of year-over-year declines. The company's mobile division has struggled to deliver the same in-demand devices it once did.
Samsung still is the world's largest smartphone maker, but competition from lower-priced devices in India and China have hurt sales in those countries. Users are flocking to other Android devices created by local companies.
Last year, Samsung's flagship smartphone, the Galaxy S5, failed to perform as well as previous versions of the device. That setback was supposed to be offset by the revamped S6 and S6 Edge, but as mentioned earlier, the company miscalculated the demand, which hurt sales. Analysts are now predicting a 28% drop in Samsung's mobile operating income in Q2.
Samsung's smartphone mobile losses are Apple's gain. As users cool to Samsung's high-end devices, the iPhone maker will offer new iterations of the already-popular iPhone 6 line-up -- and likely steal away more users in the high-end market.
Nothing's set in stone
Of course, WSJ could be wrong about the 90 million iPhone production figure, or Apple could fail to deliver on all or some of its current opportunities and actually sell far less than that. But for now, it appears the company is perfectly positioned to see more iPhone growth, and there doesn't seem to be much standing in its way.