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Analyst reports continue to indicate that iPhone X demand has lagged expectations. This along with Ireland creating an escrow account for recovery of taxes from Apple AAPL, rumors of new high end headphones and a new (possibly better and cheaper MacBook Air), were some of the interesting stories on Apple last week.
Analysts Weigh in on iPhone X Demand
Based on supply chain checks, JP Morgan cut its first-quarter production estimates for Apple's iPhone X from 20 million to 15 million units. Shipments are now expected to be 52 million instead of 55 million units. Production estimates for the second quarter are down from 18 million to 10 million units with shipments now expected to be 42 million units, down from its previous estimate of 45 million units.
Bank of America analyst Wamsi Mohan while reiterating his Buy rating and $220 price target, said that Apple is expected to launch a larger, pricier ($1,149 to $1,199) iPhone X with a 6.5-inch OLED screen along with a 5.8-inch OLED iPhone X successor and an LCD screen phone this year. There could also be an SE successor.
Whatever the strategy, investors are advised not to worry about cannibalization in the product line. He says: “While one can argue that availability of ‘good enough’ iPhones at lower price points can cannibalize sales of high-end phones, purchasing behavior has driven continued strength at the high end of the portfolio, which is driving share growth in the $600-plus category."
Jun Zhang of Rosenblatt Securities also cut his iPhone X estimates following weak sales in China during the Chinese New Year. Part of it was softening demand for mid to high end smartphones. Part of the weakness in February was also attributed to “consumer speculation around a cheaper, larger iPhone model later this year."
Accordingly, March and June quarter production estimates are now down 2.5 million and 3 million units, respectively with March quarter shipments estimated to be 50 million units, down from the prior estimate of 52 million units. June quarter shipment estimate of 38 million units was maintained on the expectations of selling 3 million units of a rumored red iPhone 8 offsetting the decline in shipments. Apple sometimes sells red products to support AIDS research and prevention (it has a partnership with an HIV/AIDS organization called RED).
Ireland is finally taking visible steps that show its intention to comply with the demands of the European Commission (EC). The EC earlier ruled that Ireland was charging Apple lower taxes in its attempt to get the company to invest in the region. But this was significantly lowering its costs with respect to other European players who had to pay regular taxes and therefore leading to an antitrust issue.
The EC said that Apple owed Ireland $13 billion in back taxes. It now appears that this amount will be transferred to an escrow account with Bank Of New York Mellon as custodian. Both Ireland and Apple are appealing the decision on the grounds that their actions were in keeping with the law as it existed at the time.
A pair of well-designed, high-end headphones, with noise-canceling technology and Siri built-in, targeted at Apple loyalists appears to be in the works. Bloomberg reports citing unnamed sources that these could launch by year end or get pushed into 2019 because of production challenges. Apple appears to be building on the success of its AirPods earbuds, which has done quite well in recent times (it lumps sales with other accessories including the Watch, which has also done well, according to IDC). If Apple goes ahead with this, there could also be some cannibalization of the Beats headphones it already sells.
Analyst Ming-Chi Kuo of KGI Securities says that Apple will launch a new and cheaper version of the $999 MacBook Air sometime in the second quarter. The analyst believes that the cheaper version can increase MacBook shipments by 10-15% this year from 15.5 million to 16 million units shipped in 2017.This could be wishful thinking given that MacRumors says the 10th anniversary device is likely to have an upgraded processor and graphics chip but could also sport an improved display.
Some analysts have said that the MacBook Air could be eliminated altogether given the limited upgrades it has received, the fact that the 11-inch version was discontinued and also given that the current lineup excluding the Air serves Apple’s purposes. But Kuo is one of the more reliable sources for information on Apple, so you never know.
A new company called Grayshift, run by a security engineer, has released a $15,000 product called GrayKey tool. The company claims it can unlock any iPhone (running iOS 10 and iOS 11, iOS 9 is in the works) with this “tool” and is now marketing the concept to police and forensics organizations. To unlock iPhones an unlimited number of times, you are required to pay $30,000.
Forbes tried digging into the ownership, but there is quite a bit of secrecy on that front, so details aren’t available. This is good news for law enforcement, which has had a hard time getting suspects to provide access to their protected information. On the other hand, its bad news for Apple and could be a concern for iPhone users if the product is sold widely.
Apple drives a hard bargain, not only with respect to what it’s willing to pay suppliers, but also with respect to labor policies at these suppliers. Following suicide attempts and deaths at some Apple suppliers and some public criticism of the company, it framed labor policies regarding number of hours, overtime, employment of underage children, safety measures, etc that suppliers are required to comply with. It also started auditing the manufactures for compliance.
The 2017 audit report has been released, according to which there were broad based improvements across suppliers. But violations regarding working hours were significantly higher than in 2016. After checking 1.3 million workers covering 700+ suppliers across 30 countries, Apple found that 94% of its suppliers are currently complying with the rules (98% complied in 2016). Cases of falsified working hours were 38 in 2017 (9 in 2016). Water conservation and carbon emission reduction were positives.
UnitedHealthcare has now extended its fitness tracking program to Apple’s Watches. The company has said that enrollees in its Motion plan that use the Apple Watch will now get a $1,000 a year, the same amount that it pays others like Fitbit users. The one difference is that they can use this amount to pay for the device, unlike a Fitbit or Garmin or other device that they would have to buy out of pocket.
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