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Apple tells suppliers to pull back iPhone 14 production, report says

Yahoo Finance Live anchors discuss reports that Apple has ditched plans to increase iPhone 14 production.

Video transcript

BRAD SMITH: When you talk about one of the defensive plays that's been looking at companies that had strong cash flows, strong balance sheets, and one of those companies in Apple has had some of the best balance sheet, at least, that it can look back to with regard to its cash hoard that it's effectively had to put into action here.

Apple, though, has reportedly gone back on its plans to increase iPhone 14 production, as demand falters. Bloomberg reporting that the company has told suppliers to nix the plans to ramp up production by 6 million units in the second half of this year and stick with its original target of 90 million units there.

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BRIAN SOZZI: If there's any positive here, Apple potentially are slowing back production, that might help inflation a little bit because they're already making less. So that's the positive silver lining, but, you know, I'm going to look back at Dan Ives. You know, I always quote his research. And why? Because he's out there hustling, and he knows what he's talking about.

Note just hit my box just now, saying this news is likely to send shockwaves across the Street. And it's not just Apple. It's Apple suppliers. It's even a company like Alphabet, of course, sells its own phones. So he's right. This is very likely to have a ripple effect and probably cause estimate declines not only for Apple, Google, Amazon, Meta, all these tech companies.

JULIE HYMAN: Well, let's dig into this a little bit and what exactly this report says. It implies that the demand is remaining high for the higher priced versions of the new iPhone suite, OK, and that it's the entry level phones that are seeing less demand. This, folks, is in line with everything we've been talking about.

This goes for what we've been seeing in retail, in other sectors of the economy, where higher end stuff is holding up better, and lower folks that-- lower income folks, low and middle income folks, are being pinched more by inflation. They're the ones who are changing their spending patterns. So this is in line with that.

What's interesting in terms of what it means for Apple specifically, a lot of the analysts are out here this morning, saying, well, we didn't necessarily think that that increased forecast in production was going to come to pass. Morgan Stanley, for example, you know, that 90 million production target that we talked about that now Apple is reportedly coming back to, Morgan Stanley said, that's what we were modeling for all along. So it looks like the analyst community is not that shocked by this necessarily.

BRAD SMITH: Well, given that most people are paying off their phones through whoever their telecom provider is and the plan there, this also messes up this cycle for Apple as well. If you're looking at-- and we've talked in the past about what a supercycle for Apple looks like, where you've got so much demand across both the medium, low end tier. And then of course, at the top end tier of the 14 Pro Max here, where you would see people just flocking to all of those devices, this is not going to be a super cycle.

And in fact, it begs the question of how much it actually throws off the next major cycle that Apple can benefit from if you see enough people that are saying, you know what? I'm just going to max out the contract to a longer period of time. And then that throws off some of the forward forecasts for Apple even more so from here. So this is a much longer term implication if Apple-- even if they do see the higher end model sell better and everybody is buying into that--

JULIE HYMAN: If you hold on to that phone for longer, yeah.

BRAD SMITH: If you're holding onto the phone for longer, right.

BRIAN SOZZI: And you know who this is bad for? Just staying on that and just going back to the shock waves, it's the phone companies. And again, we don't know where this potential weakness is coming from. Is it Europe? Is it China? Is it the US? Is it all of them? But if it's the US, this comes at a time of peak CapEx investment for an AT&T, Verizon, T-Mobile. They need to be selling more of these iPhones to justify the investments they've been spending on 5G. And of course, the phone companies do not want to see this news.

JULIE HYMAN: Yeah, and neither do all the suppliers for Apple, which maybe seem to be cut off caught offguard by this, or at least, investors.