Editors' pick: Originally published Dec. 30.
Apple (AAPL - Get Report) will be cutting back its iPhone production in the first quarter of next year, according to Japanese newspaper Nikkei, based on its calculations after talking to suppliers. The Cupertino, Calif.-based company will reportedly be trimming about 10% of its annual production due to slow sales.
This isn't the first time that Apple has reduced output amid weaker-than-expected demand. The company did the same thing in early 2016 due to excess inventory for the iPhone 6S, released in late 2015. And although Apple has reduced production for its devices in the first quarter of the year before, the company already curbed production of the iPhone 7 when it was first released in September by as much as 20%.
Shares of the company were down about 0.9% to $115.65 in mid-afternoon trading on Friday. The stock has risen about 9.9% in 2016.
The rumored production cut for the start of 2017 doesn't bode well for sales of the latest iPhone. Pacific Crest analyst Andy Hargreaves wrote in a recent analyst note that iPhone 7 momentum was slowing and was "OK, [but] not great."
Although Hargreaves noted that the iPhone 7 appears to be doing slightly better than the 6S, demand is still "far from inspiring."
"We believe weaker orders are being driven by (1) weaker-than-expected demand for the iPhone 7, and (2) to a lesser extent, supply constraints driving push-outs of the iPhone 7 Plus," Hargreaves said.
Although the iPhone 7 Plus is largely thought to be more popular than its slightly smaller partner, the iPhone 7, the device has been plagued with inventory concerns as many stores in the analyst's network report having little to no inventory on hand.
The iPhone 7 Plus' larger cameras, a lauded feature of the new device, could be what's causing the supply constraints. According to Nikkei, Apple is struggling underneath a shortage of camera sensors for the phone.
"All signs point to 2016 being the first full year of declining shipments for Apple's iPhone," Research firm IDC said in a recent note on smartphone shipments. Alongside the weaker demand that Hargreaves highlights, the company is facing more competition as Alphabet's (GOOGL - Get Report) Google unveiled its first-ever smartphone this year, the Pixel, which seems to have experienced strong sales.
But next year could be a different story, despite lower inventory in the first few months of 2017.
"By no means is this doomsday for Apple in this category and 2017 marks the tenth year of iPhone, so it is hard to believe Apple doesn't have something big up its sleeve," IDC said. "Look for Apple to mix things up with whatever version(s) they bring to market in the coming year to hopefully rebound shipment growth."
Apple's iPhone 8 is due to be revealed next year, with pundits presuming that the tenth-anniversary edition of the device will feature a major redesign. Some of the expected features include wireless charging, an OLED and edge-to-edge display and iris or facial scanning, according to Mac Rumors.
Following a year of underwhelming demand for the most recent version of the iPhone, a radical redesign could spur more excitement for Apple's flagship product.