'Apple slashing iPhone 5 component orders': Is it time for shareholders to worry?

Unconfirmed reports suggests that Apple has cut in half its orders for iPhone 5 screens for the January to March quarter, and this caused shares in the company to fall below the $500 mark because of fears that demand for the handset is weak.

According to The Wall Street Journal orders for iPhone 5 screens for the current quarter have, according to sources, "dropped to roughly half of what the company had previously planned to order."

Should shareholders start to worry? I don't think so.

In a little over a week Apple will release its quarterly financial results for the lucrative December holiday quarter, where analysts expect the company to announce record sales of between 43 to 63 million iPhones. The last quarter only covered nine days of the iPhone 5 launch, so the bulk of the increased sales from the launch of this new handset will fall into the December quarter. Apple's best quarter to date was the quarter following the release of the iPhone 4S, where the company sold over 37 million handsets.

If Apple has sold around 50 million iPhones over the last quarter, then that's an incredible level of market penetration, taking total sales of the handset top over 300 million.

So far, there doesn't seem to be much to panic about.

But suggestions that Apple is ordering half the screens that it had initially planned to could be seen as signs that the shine has worn off Apple's flagship handset. Problem is, the rumor doesn't make sense, especially the bit about cutting orders by "roughly half."

What bothers me about the report is the total lack of numbers, just that the orders have been cut. But without context it is meaningless. Did Apple expect to sell another 50 million iPhones, or 40 million, or 30 million? Without this original figure, the report is virtually meaningless.

I think that there are a number of possible explanations for the cut:

• Apple is cutting screen orders by about half for this quarter compared to the December quarter. This would make sense, as 25 million iPhone sold would be quite a solid figure;
  ?
• Apple seriously misjudged how many screens it would need and the company is having to make drastic last-minute adjustment to orders. This seems the least likely to me. Apple has a lot of experience when it comes to controlling the supply chain, and having to cut orders by this much would indicate that someone dropped the ball;
  ?
• The rumor is false, and there simply is no cut.

As is always the case, we'll have to wait and see how this plays out, but if I were an Apple shareholder, this unattributed report wouldn't be enough to make me panic. My money would still be on Apple knowing its business better than any unnamed supply chain source.

Source: http://www.zdnet.com/apple-slashing-iphone-5-component-orders-is-it-time-for-shareholders-to-worry-7000009782/

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