On January 6, the Nikkei Asian Reviewpublished a report stating that for the January-March quarter, Apple was slated to slash output of its latest models by 30%.
Is the prophecy turning out to be true? Is Apple headed for a sharp decline, or does it remain a long-term tech stock opportunity?
Apple and Suppliers' Stocks Tumble
The Cupertino, Calif.-based company has always been known to cut production after the launch of a new phone. However, a production cut of 30% is unprecedented.
The news sent the stocks of Apple and its global suppliers into a tizzy, with Apple closing on Wednesday just slightly above the crucial $100 mark. It has since moved lower. The stock is now trading close to its 52-week low of $92, after coming off from highs of $132, last seen in April 2015.
Dialog Semiconductor in Germany, which supplies chips to Apple, Sony which provides image sensors, LG Display Company which makes liquid crystal display panels and London-listed semiconductor designer ARM Holdingsall fell in the wake of the report.
Inventories Pile up
According to the report, inventories of the iPhone 6s and 6s Plus are mounting in markets across the globe such as China, Japan and Europe as a weaker dollar makes the phones more expensive in local currencies.
According to a Morgan Stanley report cited by Bloomberg, China was the sole market which displayed year-over-year growth in iPhone demand in the December quarter. However, the company's increasing presence in China is also a concern, given that the Asian giant is displaying a slowing down in growth.
Also, customers don't seem to find much of a change in performance from the phones' predecessors iPhone 6 and 6 Plus. Newer features include 3D Touch and Live Photos, which don't find many takers in the daily use of the phone.
While the cut has been put in place for the first quarter, production is expected to resume as normal in the quarter commencing April, post the adjustment occurs.
If not the iPhone, What Can Apple Rely on?
As the markets for iPhones saturate, the most valuable company in the world is also looking at alternatives in products and services to maintain its market position. In the competitive technology sphere, investors should keep their eye on tech innovators that never stand still.
Apple Watch: After a long wait for the market, the company released its wearable device, the Apple Watch, pitted against rival products by Samsung, Fitbit, and Sony. While the first release of the product has not really made waves as users struggle to understand its difference from other smartwatches, the March release of Apple Watch 2.0 will likely come loaded with announcements of advanced features. Enhancements to battery life and health sensors, and the possibility of the FaceTime feature are some of the expectations.
iPad: The company is the leader in the tablet market but its market share fell in the third quarter of 2015 as compared to the same quarter in 2014. With more saturation in the tablet market and glaring similarities between small tablets and large phones creating difficulties for selling tablets, the company's hope heavily lies on enterprises falling in love with the iPad Pro.
Macbook: The Mac saw its share rise in the third quarter of 2015 with the company impressing consumers every year upgrades over complexities of the PC. Yet, the company has delayed the launch of its new, more powerful Mac, quite possibly to make way for the iPad Pro. If it was intentional and not operations-related, one has to wonder how much of a smart move that is and if the iPad can ever be the force Apple hoped it would be.
Apple TV: Here's another somewhat successful product with uncertainties hovering about its future success. While the set-top box by Apple is the market leader by a narrow gap of three percentage points from Amazon's Fire, the company's plan for live television streaming services has faced delays due to failed negotiations with media houses.
Apple Music: The advances that Apple has made in a space dominated by Spotify need to be reckoned with. In just seven months, Apple Music, with 54.5 million average unique users, has become the ninth most popular app of 2015, overtaking Spotify and Pandora Media. Though Apple lags behind in terms of paid users, analysts expect Apple to match Spotify by the end of this year. This is the sort of tech momentum that investors covet.
Apply Pay: Probably the segment with the most growth potential, Apple Pay has not lived up to the hype yet. The promotion for the service in United States was low and store partnerships not up to the pace of consumer demands. The company is now looking for alliances in Canada, China, Singapore, Hong Kong, and Spain. It also faces Alibaba's AliPay as an established competitor in its major geography: China.
Coming back to the iPhone, the iPhone 5C is also expected to see a successor as early as April, for those who crave for a smaller and cheaper iPhone. As for the big brother, the iPhone 7 series, all sorts of rumors are making the rounds, from the absence of the home key to the elimination of the headphone jack in Apple's quest to make phones slimmer.
With a host of releases in 2015, and continued enhancements expected in 2016, it may be too early to write off Apple just yet, but the days of blind faith in Apple stock are about to end.
If you're looking for other new ideas in the technology sector, I've found a small tech company that has the potential to surge at least 100% in 2016. This is a growth story with major momentum, so it's important to learn the full details as soon as possible inside my free report. Make sure you click here now to learn more.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.