Apple Reduces iPhone Planned Builds, Suppliers Could Suffer

Apple (AAPL) reportedly plans to build 14 million to 15 million iPhone 3Gs from a previous target of 18 million for 2008, according to a report from Pacific Crest.

Citing “supply chain channel checks” Apple’s is cutting its iPhone 3G buildout. However, analysts reckon that the lower build-out plan won’t hurt Apple. However, suppliers that make the guts of the iPhone may take a hit.

The report has a few interesting data points. Among them:

• Pacific Crest found that AT&T (T) stores are seeing inventory drawdowns of 8 GB iPhones through late August and mid-September. The upshot: “The popularity of the 8 GB model reinforces our concern that smartphone demand has shifted to a lower price point. We are also concerned that if Apple chooses to refresh its lineup with a 16 GB model at $199 and a 32 GB model at $299, this could put additional price pressure on the handset industry and, by extension, the component suppliers.”
• There is a caveat to that aforementioned point. Pacific Crest analyst Adam Hargreaves said in a report that the shortages of 8 GB iPhones could be an intentional drawdown as Apple plots a lineup with more capacity.
• Suppliers are expected to take a hit. Pacific Crest cut revenue estimates for Skyworks Solutions and Triquint Semiconductor–two companies that make power amplifiers for the iPhone 3G. Linear Technology, On Semiconductor and National Semiconductor could also face some turbulence on Apple’s move.
• The shift to lower-priced iPhones will push pricing down for other handsets. We saw some of this worry on RIM’s conference call. RIM (RIMM) is aggressively going after the consumer market and launching new models. RIM also noted that it can’t pass on higher costs to customers. This ripple effect may impact Marvel and Broadcom, according to Pacific Crest.
• NAND memory prices will continue to fall. Apple alone wasn’t able to cure an inventory glut of memory and its cuts to iPhone builds certainly won’t help. Simply put, there’s more pain ahead for Sandisk and Micron Technology.

Add it up and it appears that when Apple burps the whole supply chain takes notice.

Comments

[nyc222:]

It's Andy Hargreaves not Adam.

2008 Sep 26 11:16 AM

[JW PhD:]

Since when has Pacific Crest gotten anything right about Apple?

2008 Sep 26 11:46 AM

[Julian Ivan...:]

What's not factored in here is China. The inclusion of WiFi and 3G has long been a sticking point in the China deal and the iPhone. China doesn't want WiFi in the phone for security reasons, and wants its own form of 3G, T-CDSMA, to gain traction, in its home market.

I wouldn't be at all surprised if the reason Apple may have scaled back 3G iPhone production is because there's been a China Mobile deal agreed, and its for a T-CDSMA-based (not 3G) iPhone, withouth WiFi, produced on a seperate production line exclusively for the Chinese market, with a guaranteed initial order of approximately 2-3 million iPhones over a 24 month period to make it worthwhile for Apple to produce a handest exclusively designed for one market.

The popularity of the iPhone in China will help boost the chances of success for that country's own proprietary 3G standard and help launch it with a bang, rather than a whimper.

I would be truly amazed if, with 75 countries due to be selling the iPhone by the end of the year, Apple planned on selling less that 15M on top of the 6M sales of the original 2G iPhone, by the end of CY08.

2008 Sep 26 12:10 PM

[Pete Mitchell:]

AAPL's iPhone margins are increasing with the continued fall in Nand memory pricing. Looks like AAPL believes it'll sell 14-15 MM iPhones in '08. New iPods are flying off the shelves and this will accelerate into the Holidays. Macs will continue to take mkt share and set new volumetrics records . . .

This stock right now may be the buy of the century.

2008 Sep 26 12:34 PM

[Tom B:]

Bought more AAPL today.

2008 Sep 26 04:28 PM

[inthevoid2:]

Well, this is about Iphones however I would like to comment on the other 48% of the business- the Mac. If they come out with a $499 Mac running Leopard Light it would give an entry level point for many in these hard times that would wet their appetites for the full blown real thing. Much like Microsoft always did with Microsoft Works et. al.

2008 Sep 26 06:19 PM

[inthevoid2:]

Well, this is about Iphones however I would like to comment on the other 48% of the business- the Mac. If they come out with a $499 Mac running Leopard Light it would give an entry level point for many in these hard times that would wet their appetites for the full blown real thing. Much like Microsoft always did with Microsoft Works et. al.

2008 Sep 26 06:19 PM

[TanToday:]

Pacific Crest knows NOTHING CONCRETE about production runs, they have a track record that sucks, and even IF the fictional "facts" are true, this is a STUNNING accomplishment at the LOWER rates, and almost unbelievable at the higher ones.

2008 Sep 26 09:53 PM

[iNeal:]

@Tommo: Good info. You would think the analysts would know these things.

2008 Sep 26 11:19 PM

[Jon T:]

Larry Dignan isn't any kind of analyst. The word hopeless springs to mind.

2008 Sep 27 10:15 AM

[peter02l:]

You can't expect a move to more memory (16 and 32 GB) models and expect at the same time a hit on memory manufacturers. I would imagine more memory will mean more revenue.

2008 Sep 28 03:23 AM