If there is one company that wishes 2016 could be as quickly as possible put away in the history books, it was Apple: with the Apple watch now a confirmed dud, the iPhone 7 a bust relative to Apple's other offerings, demand for Apple's once brilliant creations waning, and the first recorded declines in both iPhone sales and earnings, 2016 was a year Tim Cook would love to never repeat. Alas, according to Japan's Nikkei, 2017 is set to begin with a whimper, not a bang, as Apple will trim production of its iPhones by at least 10% in the first quarter of 2017.
The latest disappointing news comes after the company slashed output in January-March 2016 due to accumulated inventory of the iPhone 6s line at the end of 2015. That experience led Apple to curb production of the iPhone 7, introduced in September, by around 20%. But the phones still have sold more sluggishly than expected. Information on production of the latest models and global sales suggests cuts in both the 7 and 7 Plus lines in the coming quarter.
The larger iPhone 7 Plus, which features two cameras on its back face, remains popular. But a shortage of camera sensors has curbed Apple's ability to meet demand for the phones. U.S. research company IDC forecasts global smartphone shipments in 2016 on par with the 2015 level. Even Apple has had difficulty creating appealing new features, stifling demand from customers who otherwise would look to upgrade to the latest device.
The Nikkei notes that while Japanese demand for the iPhone 7 line is strong, thanks in part to the phone's compatibility with contactless IC chip readers, commonly used for services such as payment. Japan makes up just 10% or so of the global smartphone market, and cannot compensate for sluggishness overall.
Japanese component producers will again feel pain from the coming cuts. But orders from Chinese smartphone makers, as well as growing demand for automobile technology linked to automated driving, will soften the blow. A source at a major parts producer called Apple's production cut "within expectations," saying the company has reduced the role Apple plays in its overall business.
For those expecting the same pace of growth out of Apple they have been used to for the past few years, that last statement is the last thing they wanted to hear.
In response to the news, AAPL stock has dropped to intraday lows.