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Market Insights

Apple warns of production cuts, shares fall in pre market

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The pressure is piling up in markets. Government bonds are selling off and sending global interest rates spiralling higher while stocks continue to struggle.

One megatech stock appeared to be weathering the storm, but that support looks to have crumbled after an overnight Bloomberg report. Apple is trading 3.5% down in pre-market at $146.

Apple

If that pricing holds, Apple will gap down below the recent support zone and the 100 day moving average when the cash market opens.

So, what’s the story?

Bloomberg managed to speak with those all important ‘people familiar with the situation’ (sounds so much better than ‘un-named sources’ but amounts to the same thing) who tell them that Apple will be cutting production.

Apple has told suppliers to pull back from efforts to increase assembly of the iPhone 14 product family by as many as 6 million units in the second half of this year, said the people, asking not to be named as the plans are not public. Instead, the company will aim to produce 90 million handsets for the period, roughly the same level as the prior year and in line with Apple’s original forecast this summer.

Jefferies analysts also noted that iPhone 14 sales in China were 11% lower than the prior year sales of the iPhone 13.

“These initial data suggested iPhone 14’s sales may not be as strong as the pre-order levels indicated, since pre-order does not come with any payment obligations”

It’s worth asking if this slowdown is already reflected in the share price. Back in August, we highlighted the Q2 slowdown in global smartphone sales reported by Counterpoint Research:

Can Apple Beat The Global Slowdown?

Two of the key quotes from that report:

“The second quarter of 2022 proved challenging for the global smartphone market, with most vendors recording year-on-year shipment declines. Samsung was the only top-five vendor that managed to grow over the year, although this was largely due to Q2 2021 being a particularly poor quarter for Samsung thanks to COVID-related production issues, especially at its Vietnam factory.”

“Apple experienced a relatively small decline of 5% year-on-year due to macroeconomic headwinds, particularly in China.”

So far, the rumoured production cuts will simply bring Apple’s output back to the original forecast. Indeed, the original decision to increase production always seemed optimistic. Apple is a global leader in many respects, and holds a pricing power that many companies can only dream of.

However, they still operate in the same global economy as the rest of the mere mortals. If the global economic trend is heading in one direction (and the increasingly stark warnings of a global recession from all corners suggest a strengthening downward trend), there’s only so long any company can swim against the tide.

Perhaps the more important question is if Apple will need to cut demand further. The original projections made no mention of any economic headwinds (if they had, Apple surely wouldn’t have announced the production increase), so are things about to get even worse for the iPhone maker?

Not investment advice. Past performance does not guarantee or predict future performance.

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