Skip to Content
Stock Analyst Update

Reaction to Reduced iPhone Orders Overblown

Production in the 80 million range would be entirely reasonable and is not an indication that iPhone end customer demand (and thus revenue) will be significantly lower than last year.

Mentioned:

We will maintain our $175 fair value estimate for narrow-moat Apple, as the Nikkei Asian Review reported, "Apple warns suppliers of 20% drop in new iPhone parts orders." We're also maintaining our fair value estimates for related chip suppliers like narrow-moat Skyworks ($106) and Qorvo ($83). We continue to view Apple as slightly overvalued and see a modest margin of safety in Skyworks today.

If accurate, the report suggests that initial iPhone production for  Apple's (AAPL) latest slate of smartphones will be down from 100 million units produced last summer to 80 million units being built this July and August ahead of Apple's anticipated iPhone introduction this fall. In our view, production in the 80 million range would be entirely reasonable and is not an indication that iPhone end customer demand (and thus revenue) will be significantly lower than last year. We note that Apple sold 78 million iPhones in the December 2017 quarter, relatively consistent with the December 2014-December 2016 quarters. Thus, the 100 million unit build last year was essentially for a super cycle that did not come to fruition, leading to excess chip inventory that plagued a host of Apple suppliers in early 2018. We view these lower levels of early iPhone production in 2018 as raising the likelihood that Apple will avoid another big inventory buildup, rather than a sign that customers will not flock to the company's new iPhones.

We note that our $175 fair value estimate for Apple is not based on the hopes of an iPhone super cycle in the next 12 months, especially since this is the second year of a high-end iPhone model with 3D sense and OLED screens, rather than a brand new introduction. We continue to model Apple selling iPhone units in the high-70 million unit range in the December 2018 quarter, again relatively in line with recent historical results. Our fair value estimates for Skyworks, Qorvo, and many other iPhone-related chipmakers also incorporate similar sales levels.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Brian Colello does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.