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Apple (AAPL) Lowers iPhone 14 Production on Sluggish Demand

Apple AAPL is lowering the production of its latest iPhone 14 devices amid faltering demand, per a recent report from Bloomberg. The company has asked its suppliers to reduce production by roughly six million units in the second half of this year.

Apple now targets to ship approximately 90 million iPhones during this period, unchanged year over year and on par with its original expectation. The company had expected to ship roughly 220 million iPhones in 2022, similar to 2021.

Apple shares declined 1.27% to close at $149.84 on Sep 28 following the report. Shares of Taiwan Semiconductor TSM, which manufactures the chipset for iPhone 14, declined 1.23% to close at $72.13. In pre-market trading, shares of Apple and TSM shares were down 1.39% and 2.33%, respectively.

Apple has been struggling in 2022, primarily due to supply-chain disruptions, industry-wide silicon shortage, unfavorable forex and the Russia-Ukraine conflict.

The near-term outlook is not enthusiastic, given the headwinds. Apple did not provide revenue guidance for third-quarter fiscal 2022. Apple expects COVID-induced supply chain disruptions and the industry-wide silicon shortage to hurt its top line by $4-$8 billion. Unfavorable forex is also expected to hurt revenues by 300 basis points (bps).

Apple Inc. Price and Consensus

Apple Inc. Price and Consensus
Apple Inc. Price and Consensus

Apple Inc. price-consensus-chart | Apple Inc. Quote

Moreover, the absence of revenues from Russia is expected to hurt the top line by 150 bps. Apple paused all sales in Russia during the fiscal second quarter (March quarter).

Overall, on a year-to-date basis, Apple shares have declined 19.5%, while Taiwan Semiconductor’s shares are down 42.6%. The Zacks Computer & Technology sector declined 33.9% over the same time frame.

iPhone Pro Devices Shine Among the Gloom

Apple unveiled four new iPhone models — iPhone 14, iPhone 14 Plus, iPhone 14 Pro and iPhone 14 Pro Max — on Sep 7, at its biggest product launch event of the year.

The premium iPhone Pro models have reportedly witnessed more demand compared with iPhone 14 and 14 Plus. The iPhone Pro (6.1-inch) and Pro Max (6.7-inch) models feature Dynamic Island (a new design) and the Always-On display. These models are powered by an A16 Bionic chip and are available at the starting price of $999.

The sluggish demand for iPhone 14 and 14 Plus can be attributed to price increases in international markets, raging inflation and a strong U.S. dollar.

Apple’s 5G-supported iPhone 14 (6.1-inch) and iPhone 14 Plus (6.7-inch) are powered by the A15 Bionic chip with a 5-core GPU and feature an eSIM. Prices of these devices start at $799 and $899, respectively.

Although Apple didn’t offer any surprising new features in the latest iPhones, the company enhanced the safety features with the introduction of Crash Detection and Emergency SOS via satellite. The latter feature will be available to users in the United States and Canada in November, and the service will be free for two years.

Diversifying Production Base Bodes Well for Apple

iPhone remains a major growth driver for Apple, despite the company’s conscious efforts to reduce dependence on device sales. Its Services portfolio, of which Fitness+ and Apple TV+ are part, benefits from the iPhone’s strong install base. Hence, faltering demand for iPhone 14 devices is expected to hurt growth in the near term.

However, Apple’s initiative to diversify iPhone production into countries like India and Vietnam bodes well for long-term prospects.

Apple is gradually lowering its dependency on China for producing iPhones. The iPhone-maker has started producing the latest iPhone 14 in India much sooner than expected. Apple partner Foxconn is manufacturing iPhone 14 in the Sriperumbudur facility near Chennai. These devices are expected to go on sale in India later this year.

India is expected to become a major production hub for Apple by 2025. According to JP Morgan analysts, Apple will move 5% of global iPhone 14 production to India by late 2022 and will manufacture 25% of all iPhones in India by 2025.

Moreover, Apple is expected to benefit from the strong momentum of the Services portfolio, of which Fitness+ and Apple TV+ are a part. Apple had more than 860 million paid subscribers across its Services portfolio at the end of the fiscal third quarter.

Zacks Rank & Stocks to Consider

Apple currently has a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the same sector are Absolute Software ABST and Paylocity PCTY, both sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Absolute shares have increased 21.5% in the year-to-date period. The Zacks Consensus Estimate for ABST’s fiscal 2023 earnings has moved 487.5% higher over the past 30 days to 47 cents per share.

Paylocity shares have increased 4.2% in the year-to-date period. The Zacks Consensus Estimate for PCTY’s fiscal 2023 earnings has been steady over the past 30 days at $3.58 per share.

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Apple Inc. (AAPL) : Free Stock Analysis Report

Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report

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