Apple shares are lower today on concerns that demand for the iPhone 5 may be slackening. Japan’s Nikkei news service and The Wall Street Journal both report that Apple has made sharp cuts in its orders for iPhone 5 parts, prompting speculation that orders for the company’s newest smartphone are not meeting expectations.
Nikkei reported that Apple initially planned to order 65 million display screens during the first quarter, and has now sliced that order in half. Investors are clearly concerned that Apple’s upcoming earnings report will reflect a sales slowdown, but it is unlikely that Apple ever expected to sell 65 million iPhone 5 units during a three month period. During the three months ended Sept. 29, the company sold just under 27 million iPhones, and its quarterly record is 37 million (first three months of 2012).
The three suppliers of LCD screens for the iPhone 5 are Sharp, LG Display and Japan Display. Previous iPhones used displays manufactured by Samsung, but Apple has apparently ended that supplier relationship as Samsung has emerged as Apple’s fiercest competitor in the smartphone market. According to IDC, Samsung had more than 31% of the smartphone market in Q3 2012, more than twice Apple’s market share.
Apple has struggled with screen supplier Sharp for several months, and Sharp’s difficulties have also impacted iPad screen supplies. The iPhone 5’s screen uses “in-cell” technology, meaning that touch sensors are embedded into the liquid crystal display (LCD). The combination of a challenging manufacturing process and a financially unstable supplier may have prompted Apple to order more screens than it really needed as a precautionary measure.
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