What's behind Apple's (NASDAQ: AAPL) reported decision to press its suppliers to manufacture between 85 million and 90 million units combined of two new iPhone models by the end of the year? China could be a major factor.
According to The Wall Street Journal, which cited unnamed sources familiar with the matter in Apple's supply chain, Apple plans to boost its initial production run for its next iPhones, which are expected to be unveiled in September and be basically the same physically as the 4.7-inch iPhone 6 and 5.5-inch iPhone 6 Plus. In 2014 Apple reportedly ordered a then-record initial production run of 70 million to 80 million iPhone units.
Analysts expected iPhone unit sales to grow by only 1 percent for Apple's 2016 fiscal year, according to FactSet data cited by the WSJ. In the first two quarters of its fiscal year, which ends at the end of September, Apple sold 135.6 million iPhones, a 43 percent increase year-over-year, and analysts expect total unit sales for the fiscal year to grow 36 percent.
What's changed for 2015, when Apple is expected to debut slightly refined models along the lines of the iPhone 5s and 4S? In a word, China.
In the first quarter of the year iPhone sales in greater China outpaced those in the U.S. for the first time in Apple's most recent quarter, helped by the Chinese New Year celebration. Apple last year expanded iPhone sales to all of China's top wireless carriers. The Journal notes that iPhone sales in China ballooned more than 70 percent year-over-year.
Apple is likely anticipating continued strong demand for the new iPhones. A survey of Chinese customers by CLSA, an equity brokers and investment group headquartered in Hong Kong, found 60 percent of iPhone owners are currently using iPhone 5s or older, meaning there are likely large numbers of customers still waiting to upgrade to newer models.
- see this Wall Street Journal article (sub. req.)
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