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Apple shares fell significantly this week after a Bloomberg report claiming that Apple has decided to “walk back” from an initial effort to increase iPhone 14 production by 6 million units.
As a result, Apple aims to manufacture around 90 million iPhones during the rest of the year, as opposed to 96 million. As expected, the report led to a series of “The iPhone has peaked!” reports to sprout across the web.
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However, the claim that iPhone 14 sales are disappointing or slow is incredibly misleading.
We have been down this path countless times before. People get so caught up in obscure supply chain reports regarding initial production numbers that they completely lose sight of the bigger picture.
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Truth be told, Apple is doing just fine. And as for the decline in production, 90 million units is what Apple initially planned to manufacture.
iPhone 14 production is outpacing the smartphone industry
Regarding iPhone 14 sales, it's too early to make sweeping statements in either direction. The iPhone has been out for about two weeks at this point.
And if we're honest, we're past the days of people enthusiastically upgrading immediately when a new iPhone hits the market.
In reality, even people who want to upgrade to an iPhone 14 can simply wait a while before pulling the trigger.
The real test will be how iPhone 14 sales stack up ahead of the busy holiday shopping season. If iPhone 14 sales dip slightly in November and December, that could definitely be a cause for concern.
But then again, seeing as how the iPhone 14 hit stores two weeks ago, it's too early to say that sales are a disappointment.
It's also important to look at iPhone production in the context of the larger smartphone market. To this point, Peter Elstrom of Bloomberg grades:
But for Apple to build 90 million new iPhones is not a disaster. The overall smartphone market will shrink substantially, with a forecast of negative 6.5%. For Cupertino, the flat is the new up.
Apple is certainly not immune to the ebbs and flows of economic variables. In turn, if Apple can keep iPhone production stable in a difficult economic environment – even as rivals struggle – it underscores how strong demand for the iPhone 14 is.
It's also worth noting that analyst Ming-Chi Kuo discovered by Bloomberg unsourced report a bit strange.
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Rumors of Apple abandoning increased iPhone production sound a little strange to me. As I researched before, Apple had plans to shift production from the iPhone 14/14 Plus to the iPhone 14 Pro/14 Pro Max/pricecut 13, but I haven't heard of any general plans to increase iPhone production.— 郭明錤 (Ming-Chi Kuo) (@mingchikuo) September 28, 2021
iPhone 14 Pro models are selling exceptionally well
Additionally, people seem to be ignoring that Apple's iPhone 14 Pro models represent the vast majority of sales so far. In other words, even if iPhone production remains stable, Apple should see an increase in its bottom line due to more favorable margins on the iPhone 14 Pro models.
Until Bloomberg admit this point:
Demand for higher-priced iPhone 14 Pro models is stronger than for the entry-level versions, according to some people. In at least one case, an Apple supplier is shifting production capacity from cheaper iPhones to premium models, they added.
Additionally, the iPhone 14 Pro Max reportedly accounts for 60% of all iPhone 14 Pro orders.
So basically, Apple's initial iPhone production remains on target, while most sales have gone to higher-priced and more profitable iPhone 14 Pro models.
All in all, it seems like it's business as usual for Apple.
As a final point, iPhone revenue is the only metric that really matters. And in fact, it's the only metric Apple reports. Consequently, we won't get a full look at how the iPhone 14 is performing until Apple's January 2023 earnings report.
In the meantime, Apple will certainly use the falling share price to buy its own shares at an accelerated pace.
