Apple Slides On Report Of iPhone Order Cuts, Drags Nasdaq Lower

Remember when a few months ago Apple stock slumped amid reports of slumping iPhone 10 demand and a weak orderbook, but investors were quick to forget all about Apple's growing troubles when Tim Cook's record stock buyback announcement and Warren Buffet latest investment quickly sent the stock to all time highs even though the fundamentals didn't justify it? Well, it turns out that despite the generosity of Uncle Warren who is simply chasing after the biggest stock repurchase program he could find, nothing has changed or been fixed at Apple, and this morning Apple's German ADRs and the stocks of Apple's European supplier tumbled after Japan's Nikkei reported that Apple has asked its supply chain to prepare around 20% fewer components for iPhones debuting in the latter half of 2018, "taking a cautious approach toward smartphone shipments compared with last year's orders, industry sources say."

"Apple is quite conservative in terms of placing new orders for upcoming iPhones this year," one of the four sources, who is in the supply chain, told the Nikkei Asian Review. "For the three new models specifically, the total planned capacity could be up to 20% fewer than last year's orders."

The U.S. company last year placed orders to prepare for production of up to 100 million units of the new iPhone 8, iPhone 8 Plus and iPhone X, but this year Apple currently expects total shipments of only 80 million units for new models, two people said.

Nikkei also adds that total iPhone shipments, including new and previous generations, declined 1% on the year in the October-December quarter to 77.31 million, Apple's data showed. The slowdown went beyond Apple, as worldwide smartphone shipments contracted 0.3% to 1.46 billion units in 2017, the first-ever decline in the industry, according to research company IDC.

Some further details:

The Nikkei reported earlier that the U.S. tech titan intends to introduce three new iPhones in 2018. Two will feature the costly organic light-emitting diode screens like the iPhone X, while a cost-effective model keeps the liquid crystal display screen used by the iPhone 8 range. All three models would carry the TrueDepth 3D sensing camera system to activate Face ID similar to the iPhone X model, industry sources say.

Apple's supply chain was told to prepare earlier for the two OLED models, in hopes of avoiding a delay similar to last year's, two industry sources said. The company, celebrating the 10th anniversary of the iPhone launch, introduced the premium iPhone X model last year with a price tag starting at $999. But component shortages as well as production quality issues with the 3D sensing feature kept the iPhone X away from shelves until November, more than one month after it was unveiled, likely harming sales of the gadget.

What the Nikkei really meant, is that demand not only for Apple's high end, high ASP products, but across all Apple products, continues to fade, putting into question just why Apple's stock is valued at almost $1 trillion.

The news sent Apple's German ADR sliding as much as 2.1%, which in turn has dragged Nasdaq futures lower. Apple suppliers were also hit, with AMS AG dropping as much as 6.7%, while other European semiconductor stocks including Dialog Semiconductor, STMicroelectronics and Infineon all slipped.

As Nikkei adds, Foxconn remains the largest iPhone assembler for the upcoming models in 2018, and is thus most vulnerable. The company will handle all of the 5.8-inch OLED smartphones, while also holding shares of 80% to 90% for the 6.5-inch OLED model and a 30% order allocation for the LCD version, according to Yuanta Securities Investment Consulting's supply chain checks. Pegatron, a smaller compatriot to Foxconn, looks to secure 60% of the 6.1-inch LCD offering and 10% to 15% of the 6.5-inch OLED model, while Wistron snares the rest of the orders for this year's new iPhones.