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The Strange Math of Apple's Alleged Massive iPhone 5 Order Cuts 298

Posted by samzenpus
from the looking-at-the-numbers dept.
zacharye writes "The Sunday evening Wall Street Journal article claiming that Apple had cut its iPhone 5 display orders drastically for the March quarter made quite a splash. The way WSJ wrote its piece seemed to support the original Nikkei claim about Apple cutting its iPhone 5 display orders in half from the originally planned order of 65 million units. This would be a massive adjustment. But Apple uses the same new display type for both iPhone 5 and the latest iPod touch. Neither WSJ nor Nikkei addressed this, however — both seemed to be referring to just iPhone 5 displays. The math just doesn't add up."
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The Strange Math of Apple's Alleged Massive iPhone 5 Order Cuts

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  • by Dupple (1016592) on Monday January 14, 2013 @12:02PM (#42582183)

    Someone is getting rich out of this

    • by alen (225700)

      most likely yes, but don't expect trumpets when apple announces earnings.

      they had a nice run,
      i still like the iphone 5 better than the S3

      but at this point hardware is a commodity. the software runs on both iOS and android

      • by tripleevenfall (1990004) on Monday January 14, 2013 @01:34PM (#42583189)

        I think part of this is a function of android getting better, and the user experience being a lot better than it used to be.

        But - I think this says more about the iPhone 5 than anything else. The 5 didn't really bring much to make Apple fans feel like they had to upgrade. An extra row of icons? Nobody cares about that. LTE is nice, but given the pervasiveness of wifi and the fact that most people are dealing with data caps, it didn't drive sales.

        After 5ish years, someone is finally pushing Apple in the mobile space. They'll have to begin innovating again.

        Competition is a good thing.

        • Apart from that, the iPhone 5 is six months old now, which means the 5s is not far away. May as well wait for the new one to come out and either catch the 5s, or get the 5 after the price drops.

    • by schlesinm (934723) on Monday January 14, 2013 @12:23PM (#42582383) Homepage

      Someone is getting rich out of this

      And the SEC is starting to investigate [wsj.com]

      • by Dupple (1016592) on Monday January 14, 2013 @12:32PM (#42582489)

        That's an interesting read. Perhaps they've spotted a pattern. This story is very similar one that was reported last year regarding the 4S

        http://www.forbes.com/sites/ericsavitz/2011/11/09/apple-reportedly-tells-iphone-parts-makers-to-delay-shipments/ [forbes.com]

        I wonder what we'll see this time next year.

      • by harperska (1376103) on Monday January 14, 2013 @12:36PM (#42582525)

        Except that is an article from 2010 about possible insider trading, not about the alleged market manipulation by driving down the stock price through rumors and FUD like seemed to start happening in 2012.

        • by schlesinm (934723)

          Except that is an article from 2010 about possible insider trading, not about the alleged market manipulation by driving down the stock price through rumors and FUD like seemed to start happening in 2012.

          The article explicitly talks about insider trading by market manipulation of channel checks.

        • by girlintraining (1395911) on Monday January 14, 2013 @02:03PM (#42583529)

          Except that is an article from 2010 about possible insider trading, not about the alleged market manipulation by driving down the stock price through rumors and FUD like seemed to start happening in 2012.

          Yes, last time they used a spoon. This time they're using a fork. However you're what's for dinner so does it really matter?

          • by rahvin112 (446269)

            Day to day, week to week and month to month stock manipulation does not hurt the long term investor (unless they are are margin). It generally only hurts the day traders and people treating the stock market like a gambling den.

            This kind of manipulation is a flash in the pan that at the longest lasts until the next quarterly report. Long term investors aren't buying and selling in that time frame. If you are the little guy buying and selling on those time frames you're a fucking idiot.

    • by UnknowingFool (672806) on Monday January 14, 2013 @12:38PM (#42582545)
      Or someone not using common sense. BGR points out that the best estimates of Q4 sales is 52M iPhones (during a holiday season). The original estimate of 65M for Q1 is being halved. First of all who put out the original estimate (certainly not Apple)? Second of all, whoever put the original estimates forgot that sales of consumer electronics most likely drop after the holidays. So lack of common sense.
    • by phantomfive (622387) on Monday January 14, 2013 @01:07PM (#42582855) Journal
      Usually the Wall Street Journal gets it accurate when it speculates on Apple, so unless they're trying to throw away their reputation and score a quick buck, probably not.
  • by aaarrrgggh (9205) on Monday January 14, 2013 @12:15PM (#42582285)

    If Apple had previously ordered 65MM 4" screens their total iPhone sales would be about 50MM iPhone 5's, 20MM 4/4S (plus 10MM iPod touch units). Quite frankly, that is impossible territory there for the December quarter, but filling the channel and a subsequent draw-down as they move more to a 6-month update cycle could possibly explain a "50% drop in screen orders."

    Quite frankly, crap like this makes me want to get out of the stock market altogether. (Which is exactly what it is intended to do.)

    • Re: (Score:2, Interesting)

      by Anonymous Coward

      If your reason for getting out of the market is information asymmetry, you are right. You and I have a lot less information than managers in the companies and those with access to those managers.

      Despite this, I stay in the market and have done well. I have two undergrad degrees in Finance and an MBA. Basically, I take a very simple strategy -- I invest almost exclusively in index funds and diversify geographically. index funds have the advantage of very low management fees and I track the market as a whole.

    • Quite frankly, crap like this makes me want to get out of the stock market altogether.

      Like every other Apple shareholder that is why the value of 13 Dells market cap got wiped off Apples Market cap in three months. I notice Apple shares continue to plunge..currently hugging just above 500. Its also why you see less people singing Apples praises here.

      In reference to spin. "Apple's orders for iPhone 5 screens for the January-March quarter...dropped to roughly half" and "The latest model comes with a longer, four-inch screen compared with the 3.5-inch screens used in all previous iPhone models.

    • Actually, a much better explanation for Apple cutting orders (from one supplier) by 50% would be because they have a second supplier.

  • The math adds up once you view it through the lense of stock market manipulation. I suspect the source of the rumour will match up rather nicely with someone who made an enormous amount of money shorting Apple today.

    • by dave562 (969951)

      There are a lot of people short AAPL. The stock has had a good run but the fundamentals are against them. They cannot defend their price points anymore. Look no further than iPhones in Walmart for the handwriting on the wall.

      • They have a P/E under 12, and a huge amount of cash. What fundamentals are you talking about?

        • The 'fundamentals' of growth that's less than 100% YOY.

          That's considered bad, but only for Apple. And only on Wall Street.

        • by dave562 (969951)

          The shrinking market for their products and the pressures on their margins. The company itself is fine. However it has been valued based on its ability to generate abnormally high profits and lots of volume. This article is an example of Apple purchasing fewer displays because they do not forecast as strong of a demand for their products as previously expected. There was an article last year about Samsung jacking up the price of the processors. Look for more of the same in the future. Fewer sales, few

          • The shrinking market for their products

            Neither the smartphone market nor the tablet market is shrinking.

            The PC market is shrinking, but that's largely because of Apple's iPad. But within that market Macs are still in growth. With lots of room for moregrowth as their new customers come from the 90% who currently have Windows PCs.

      • by tgibbs (83782)

        iPhones in Walmart are selling with a contract, which means that Apple is still making a healthy profit on them.

        • The ones I'm seeing on Walmart.com are without contract. But here's the thing: They are exactly the same price as the Apple Store sells them for. Walmart is offering 26 months interest free credit terms to sweeten the deal. But there's no lowering of the price.

  • by js3 (319268) on Monday January 14, 2013 @12:21PM (#42582357)

    why is BGR even trying to do math on something it has no numbers on?

  • Apple (Score:5, Insightful)

    by the eric conspiracy (20178) on Monday January 14, 2013 @12:34PM (#42582511)

    Apple has serious competition now. Back when they were the only game in town they could do as they pleased.

    But fat margins and high market share rarely last. And when margins and market share come down so does the stock.

    A company whose primary product is a smart phone has the highest market capitalization in history? That smacks of Tulips [wikipedia.org]. You know it can't last.

    • Apple has serious competition now. Back when they were the only game in town they could do as they pleased

      The iPhone marketshare right now is highest in Apple history with >53% of the US market. They were never the 'only game in town'.

      http://bgr.com/2012/12/21/apple-market-share-u-s-262731/ [bgr.com]

    • Don't confuse primary product with only product. Without the iPhone or iPad, Apple would still be very profitable. Yes they make a great deal of money on the iPhone which is actually more revenue than ALL of Microsoft. So their market cap is somewhat justified.

      The analogy to tulips doesn't make sense here. The tulip situation was based on pure speculation of a market. The main difference is Apple makes real revenue on products not speculative revenue.

      • Without the iPhone or iPad, Apple would still be very profitable

        ...no it wouldn't what a load of rubbish,its profits would take a massive dive instantly. Most of their profits come from the iPhone. Secondly without the iPhone/iPad is Apple relevant.

        • Without the iPhone or iPad, Apple would still be very profitable

          ...no it wouldn't what a load of rubbish,its profits would take a massive dive instantly. Most of their profits come from the iPhone. Secondly without the iPhone/iPad is Apple relevant.

          You are confusing profit margin with profit.

        • Apple makes about 30+% margin on their computers. This has not changed since Jobs came back. Without the iPhone, Apple would still be profitable.
          • Yes, you are correct. But what I believe the poster was trying to say is that while Apple would be profitable, in the sense they make more money then they spend, they would not be as profitable, in the sense that they do not make as much total profits. As you point out, the iPhone alone brings in more revenue than all of Microsoft, but this goes to show that Apple is not diversified. Without iPhone/iPad, Apple is back to where they were in 2007. Mac hasn't grown much since then, they've all but killed their
            • Yes, you are correct. But what I believe the poster was trying to say is that while Apple would be profitable, in the sense they make more money then they spend, they would not be as profitable, in the sense that they do not make as much total profits.

              No company would be AS profitable if you took away their two most profitable products. It's just a truism, and not worth saying. The point that Apple would still be profitable without them is worth saying. And proves that your accusation of not being diversified enough is false.

              Without iPhone/iPad, Apple is back to where they were in 2007. Mac hasn't grown much since then

              In 2007 they sold 7.2 million Macs.
              In 2012 they sold 18.2 million.

              they've all but killed their enterprise efforts, and iPod is no longer what is once was.

              Their "enterprise efforts" never counted for very much. So no loss there. And the iPod is mostly sold as part of the iPhone these days. It's silly to imagine "without

    • by Mitreya (579078)

      Apple has serious competition now. Back when they were the only game in town they could do as they pleased.

      Apple does not have enough competition for some reason.

      Ever try to buy a non-Apple equivalent of MacBook Air? an iPod touch substitute?

      • by Belial6 (794905)
        I have seen MacBook Air equivalents, although I didn't pay enough attention to remember who made them. The iPod touch substitute is easy. Buy any Android phone and don't put it on a cell plan. Android phones work just fine as wifi only devices.
        • by Mitreya (579078)

          I have seen MacBook Air equivalents, although I didn't pay enough attention to remember who made them.

          Please look it up. Note that both the weight and matching screen resolution are non-negotiable. A laptop that's +1lb heavier or relies on 1024x768 max resolution will not count as a MacBook Air equivalent.

          The iPod touch substitute is easy. Buy any Android phone and don't put it on a cell plan. Android phones work just fine as wifi only devices.

          The iPod touch is significantly thinner than an iPhone (and cheaper). An iPhone does not count as iPod touch substitute, why should an Android phone?

    • While it is true that the share price is partly based on the assumption that the price will continue to go up - i.e., getting in now is the best way to make money on Apple's future success. - there is good reason for optimism. The Tulip example is of course a metaphor, but Apple is not a commodity or even a set of products. Apple is a way of designing, making and marketing products. The reason Samsung is able to sell smart phones at the rate they are is because Apple made everyone "realize" that smart ph
  • by Chuckstar (799005) on Monday January 14, 2013 @12:48PM (#42582629)

    It's unlikely Apple completely blew the estimated sales for iPhone 5 in the March quarter by that much. The most likely explanation is that the rumor is just wrong. Next most likely is that the 5S is coming soon and gets a slightly tweeked screen. Maybe even just a slightly different part from the same supplier. Whoever leaked the info saw the partial cancellation, but isn't aware of the replacement order. And, remember, even if 5S isn't coming until the next quarter, Foxconn might have to start taking delivery of screens this quarter, in order to ramp up production and build launch inventory.

  • by 140Mandak262Jamuna (970587) on Monday January 14, 2013 @12:56PM (#42582715) Journal
    Most people thought Apple patented rounded rectangles. But in reality they have patented all roundings including rounded numbers. So that explains the difference.
  • Sign of the times (Score:4, Insightful)

    by TheSkepticalOptimist (898384) on Monday January 14, 2013 @01:48PM (#42583365)

    I've said before that the world's love affair with Apple is slowly eroding, and so it seems iPhone 5 orders are not quite what Apple was expecting. 2013 is going to be a very tough year for Apple and coming out with cheap iPhone mini's or doing minor revamps of existing products are not going to cut it. Unless Apple does something truly innovative with iOS and iPhone in general, this slow erosion of their market will pick up speed.

    Cutting back screen orders because they want to introduce a new product does not make any sense, why place an order so large in the first place? Is Apple so completely out of touch they don't even have a firm release cycle for future products when they ship a new product? Like they didn't know the 5S release cycle when they shipped the iPhone 5? I would be dumping Apple stock if this is their emerging trend, release a product with ridiculous expectations on sales, cross their fingers, and when the sales don't reach their inflated estimates dump the product and rush a new version to market???

    Nothing about this speaks of a company that is being run properly.

    • by tgibbs (83782)

      Now if it was iPad screens, I'd consider the report more plausible. One thing that nobody can know until Apple's quarterly report is the impact of the iPad mini on sales of the full-size iPad. There are three iPad mini buyer scenarios, not all mutually exclusive.

      Scenario 1: The iPad mini attracts buyers who might otherwise have bought an iPad. The iPad mini has a healthy margin, but it's a cheaper product, so Apple's total revenue will suffer.

      Scenario 2: The iPad mini appeals to buyers who would not have bo

    • Like they didn't know the 5S release cycle when they shipped the iPhone 5?

      Who says they did?

      If they weren't sure if they could do that upgrade cycle yet, or if Sharp was going to get IGZO production working (which six months ago was an unknown) why wouldn't they hold on to their part orders? If IGZO production couldn't be ramped, they probably could ship using the existing screens instead.

      There are a lot of reasons that even if they were aiming for a six month upgrade cycle they would have had a backup plan. The six month upgrade cycle falling out and then not having the part ord

    • I've said before that the world's love affair with Apple is slowly eroding

      Sure, you've been saying it for years. And year after year Apple's results have proved you wrong.

      In part it's because you foolishly accept any rumour as fact without considering that time and time again these rumours turn out to be false. Click trolling or market manipulators.

  • Maybe they have enough displays to make all the iPhone 5's they're going to sell, so the iPhone 6 can be released sooner. The quicker they're churned out, the more they'll sell.

  • by Cassini2 (956052) on Monday January 14, 2013 @05:40PM (#42585757)

    Modern supply chain systems make extensive use of EDI and ERP systems. When you are Apple, and you really want to make sure you have sufficient capacity to supply your product, you tool up two suppliers to supply the full volume of your sales. As such, the EDI system says that in 6 months you will ship 32 million units x 2 suppliers = 65 million units.

    At the 3 month mark, both suppliers are fully tooled up. As such, you cut the 3 month advance planning order to 16 million units x 2 suppliers = 32 million units. This should be close to actual sales. This is done, because the automated ERP systems will actually build 65 million phones, unless someone tells them to stop.

    Crazy numbers like this happen all the time in some industries. 6 month = 2 million units/month. 3 month = 1 million/month. 1 month = 1.5 million/month. 2 week = 0.5 million/week. 1 day = 0.2 million/day. The numbers can be all over the place. Sometimes, the suppliers have no idea how many parts will be shipping the next day.

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