Ever since Apple's fall event announced the arrival of the new iPhone 14 and iPhone 14 Pro models, there's constant speculation about the demand or lack thereof for these smartphones. How should we think about the constant flurry of scuttlebutts we are exposed to on the news, television, and social media?
October 19, 2022
Apple’s fall event announced the arrival of the latest iteration of the iPhone. Alongside the latest and greatest gadgets, we were also treated to the news cycle of articles, starting with the reviews, then predictions and speculations of demand or the lack thereof.
As I previously wrote, this year’s iPhone lineup was incrementally innovative. With the design largely retaining the spirit of the older iPhone 13 lineup, most of the changes could be bracketed under software changes, coupled with some hardware upgrades. And as one would anticipate, it didn’t take long for the news cycle to start talking about weak demand.
Bloomberg on September 28 reported that Apple was backing off plans to increase iPhone production after “an anticipated surge in demand failed to materialize.” That article (which might be behind a paywall) claimed, based on “people familiar with the matter,” that Apple planned to build 90 million iPhones in the year’s second half. However, Bloomberg’s article also implied more robust demand for the higher-priced Pro models.
Apple’s stock was volatile the day this news broke, but that’s neither here nor there, considering the heightened volatility of the stock market. The bigger question is – what is a long-term focused investor to do with this type of scuttlebutt?
Personally, I read them, but I also try to maintain context. For instance, we know that Apple’s supply chain is vast and immensely complex, so few people have a 360-degree view of the ongoings. Therefore, it is worth considering the past accuracy of the outlets or analysts making these claims. One way to assess the veracity of these claims is to cross-reference with other sources. The Bloomberg article shares common ground with Ming-Chi Kuo’s (famous Apple analyst) September 20 Twitter thread; Kuo said Apple had asked Foxconn to shift some production lines from iPhone 14 to iPhone 14 Pros.
So, perhaps there is indeed some softness in iPhone demand. That wouldn’t be entirely out of the world considering the broader macro picture and the fact that Apple’s iPhone has become dearer in Europe thanks to the strengthening of the US dollar. But then, there was also news that for the first time, Apple is producing the flagship iPhone models in India and plans to use India as an export hub for iPhones.
So is iPhone 14 production still proceeding according to the company’s plan? Maybe Apple is moving some iPhone 14 production elsewhere to make room for iPhone 14 Pro pent-up demand?
You see, it is easy to get confused with all these scuttlebutts.
Analysts continue to make predictions about iPhone unit sales, but Tim Cook and co stopped providing that level of disclosure a while back. What we receive from Apple now is the total sales with some color on the average selling price. And if sales of iPhone Pro models exceed Apple’s expectations, then the company might have a good problem at hand because the Pro models are likely to be higher margin products.
But this sort of analysis is still relatively short-term focussed. Apple’s iPhone sales are a huge peg in the company’s business. But it is also important to realize that the smartphone is a mature market and it will only grow slowly going forward. What matters more for Apple is how the company continues expanding and strengthening its ecosystem. Apple’s story is now about a large user base, one that is growing slowly but steadily. Every now and then, Apple adds new features and products that are meaningful to its customers. Over time that means a larger share of the customers’ wallets, more stickiness, and an unparalleled opportunity to give the next generation of technology a shot at success.
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