Biglittleiphone

Apple's iPhone 6s and 6s Plus. Image credit: Apple. 

Benzinga recently got ahold of a report from SMBC Nikko Securities in which the analysts claim that Apple (NASDAQ:AAPL) may be preparing yet another round of iPhone production cuts as a result of "excess inventories." It's not clear whether the analysts refer to iPhone inventory in the distribution channel or at Apple itself.

Adding additional color, the analysts say that "inventories of current iPhone models stand at 50-60 [million] units," and that these inventories are unlikely to be absorbed even following the "sharp cutbacks to production in Jan-Mar."

The cause of these reportedly high inventories apparently stem from "weak demand."

Although the above may seem plausible, here's where the report loses credibility with me.

"Attraction of the [iPhone 7] will be weak"
After saying that the current iPhone demand is weak, the report goes on to say that the next generation iPhone -- widely called the iPhone 7 -- won't do much to stimulate customer demand.

Indeed, Benzinga says that the SMBC analysts believe that Apple doesn't have any "major [hardware specification] changes planned."

The report apparently further goes on to claim that Apple won't be using new display panels in the new phones, recycling the same ones from the iPhone 6s/6s Plus (which in turn were recycled from the iPhone 6/6 Plus).

I'm not buying it.

If Apple doesn't have any major changes planned, what do they expect to sell iPhone 7 on?
Apple spends substantially in research and development, far more than the majority of its peers in the smartphone market. It's hard to imagine that with all of the development resources that the company puts behind each of its projects -- especially ones as important as its "new number" iPhones -- that "no major spec changes" would be anything close to acceptable for it.

Indeed, it was Apple marketing chief Phil Schiller who told Bloomberg back ahead of the iPhone 6s/6s Plus launch that "the bar for functionality is higher with every generation" and that Apple can't tell customers that this year's iPhone "does the same thing" that last year's iPhone did but "5% better."

I don't think making the device just a bit thinner, or putting in a faster A10 chip, qualifies as a major leap in functionality, either.

What makes even less sense is the claim that Apple will reuse the same exact LCD panels that were found on the iPhone 6s/6s Plus. Apple is already falling behind major Android flagships in display performance (DisplayMate's Raymond Soneira said in an email to Forbes contributor Brooke Crothers that the iDevice maker's current flagships are "running well behind the display curve"), so it seems ludicrous to think that Apple won't update those panels.

Indeed, with major Apple display vendor Japan Display having recently commenced mass production of its "Pixel Eyes 2" displays (which bring about a host of improvements over its first generation Pixel Eyes displays), I would be stunned if Apple didn't use a new generation of displays on iPhone 7.

This report seems questionable
At this point, I find it hard to believe that SMBC's claims of another big round of iPhone production cuts will hold, particularly in light of commentary around iPhone 7 that simply doesn't jive with what the iDevice maker is likely to bring out.

If other analysts/brokerage houses come out with similar, independent reports of further production cuts/inventory glut, then it might be time for investors to brace for said cuts. But, were I an Apple shareholder, I wouldn't take any action solely on this news.


 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.