Apple shares dip on reports of iPhone production slowdown

Shares of Apple (NASDAQ: AAPL) dipped in pre-market trading Wednesday morning following multiple reports that the company has decreased orders of the iPhone during the past few months.

The Wall Street Journal reported that a government document indicates Foxconn, the Chinese manufacturer that assembles iPhones, was reportedly promised $12 million in subsidies by a Chinese provincial capital to minimize layoffs at its operations there. Foxconn had already begun cutting jobs in the region when those funds became available, according to the Journal.

Meanwhile, a report in the Nikkei Asian Review cited "several parts suppliers" in a piece claiming Apple plans to slow production of the iPhone by roughly 30 percent during the first quarter of 2016. Apple had initially asked its component vendors to maintain production of the iPhone 6S and 6S Plus at the same levels of the previous versions of the handset a year ago, but inventories of the two newer models in the U.S. and major markets in Asia and Europe have been piling up at retailers due to disappointing sales.

The two newer models were released in September. Apple hopes the slowdown in production will enable retailers to deplete their stocks, and the company plans to resume production back to normal levels for the second quarter of 2016.

Apple declined to discuss sales forecasts or any related layoffs with the Journal, but a Foxconn statement claimed that: "The incentives were provided to Foxconn in recognition of our company's contributions to maintaining our significant work force at our Zhengzhou facility throughout the year."

Apple shares were down more than 2 percent in pre-market trading.

However, Wells Fargo Securities said in a research note that lower carrier demand for the iPhone 6S and 6S Plus "should not be surprising as history has shown that S-cycles typically have lower units per carrier than non-S cycles. We also believe unit strength could come from lower end models and note that in the 5S cycle, Apple saw strength from the 4S due to strategic actions in various markets."

That sentiment was echoed by the Nikkei Asian Review, which noted that "Apple's products and brand have not lost their appeal, and older models have continued to sell."

Like other handset vendors, Apple is struggling to maintain sales growth as smartphone penetration rates near the saturation point in major markets such as the U.S. and China. The company's shares are down 13 percent over the last month.

But while Wells Fargo Securities said a year-over-year decline in iPhone sales during the first quarter of 2016 may occur, it believes "iPhone units have not peaked and expect December 2016 iPhone (iPhone 7 cycle) shipments to be higher yr/yr."

For more:
- see this Wall Street Journal report
- see this Nikkei Asian Review story

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