In a note obtained by Barron's, analyst Chris Caso with Susquehanna Financial Group said that signs point to demand for Apple's (NASDAQ:AAPL) newly launched iPhone as being weaker than expected. One of the signs Caso cites is that the "wait times" for new iPhone 6s orders to fill are "notably shorter than last year."
Caso admits that these "shorter delivery times can in part be attributed to better production planning" but ultimately believes that it's an "indication of smaller supply/demand imbalance this year."
Although I wouldn't be surprised to see iPhone 6s and 6s Plus sales ultimately fail to top the record-smashing numbers that the iPhone 6 and 6 Plus achieved last year, I'm not convinced that the lack of a supply shortage is necessarily a reliable sign that this will be the case.
Better production planning is a good thing
In Apple's peak iPhone quarter following the iPhone 5s launch, the company sold 51 million iPhones, a 6.67% boost from the 47.8 million iPhones it sold in the peak quarter following the iPhone 5 launch. In the peak quarter following the iPhone 6/6 Plus launches, Apple sold a whopping 74.5 million iPhones, amounting to more than 46% unit growth year over year.
We probably saw serious supply/demand imbalance during that quarter because it's unlikely Apple could have foreseen such a large year-over-year increase in iPhone unit sales. Yes, Apple could have reasonably counted on share gains and some degree of pent-up demand for larger-screen iPhones, but the kind of growth the company saw was almost certainly a positive surprise for the top brass at Apple.
With the iPhone 6s, I wouldn't be surprised to learn that the company was ultimately counting on a modest increase in sales year over year similar to what it saw in going from the iPhone 5 to the 5s. In that case, Apple probably had ample time to make sure it had enough units available to satisfy a good portion of the demand from the get-go.
The only scenarios under which I would have expected Apple to see iPhone 6s and 6s Plus order "lead times" similar to those seen with the 6/6 Plus are the following:
- Apple and/or its suppliers faced catastrophic production challenges.
- Apple saw another unanticipated step-up in demand from the prior year.
Given that neither (1) nor (2) seems to be the case this year, it's not surprising that supply of Apple's latest iPhones is better this year than it was in the year prior.
Can Apple grow iPhone sales in this coming fiscal year?
Well-respected analyst Ming-Chi Kuo with KGI Securities said in a recent research note that during Apple's first fiscal quarter, it could see iPhone sales of between 70 million and 75 million. At the high end of that range, Apple would register slight year-over-year iPhone shipment growth, with the midpoint suggesting a contraction.
If Apple does ultimately see a contraction in iPhone shipments during the first quarter of its fiscal 2016, then this would probably bode poorly for iPhone growth throughout the year. After all, if Apple can't deliver year-over-year unit growth during its peak iPhone quarter, then it would become hard for investors to believe that things will get much better for the iPhone 6s and 6s Plus in subsequent quarters as customers begin to anticipate Apple's next-generation iPhone 7.
If Apple can deliver growth during the iPhone 6s and 6s Plus cycle, then that might bode really well for the company. After all, if phones such as the iPhone 6s and 6s Plus -- which are excellent, but incremental updates over the 6 and 6 Plus -- can do that well, then the iPhone 7, which could be a much more substantial update, might be able to generate even more upgrade interest.