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Apple Inc. Cuts iPhone 7 Build Orders, Says UBS Research

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After several quarters of declining sales, Apple is expected to return to growth during the current quarter. However, UBS Research claims (via Apple Insider) that the Cupertino company might be cutting the iPhone 7 and 7 Plus build orders. UBS analyst Steven Milunovich said in a research note to investors that Apple suppliers have reduced the production numbers for the December quarter from 75 million to 74 million units.

Does that mean weaker iPhone 7 sales in current quarter?

It’s worth pointing out that reduction in build orders does not necessarily mean a decline in iPhone 7 sales. Milunovich believes that Apple will still see a growth in December quarter, but it’s “too soon to make a call” on the March quarter. The tech giant might be reigning in the build orders to avoid a stock buildup. Apple experienced a glut of stock with the iPhone 6S and 6S Plus last year.

The research firm expects Apple to ship 76 million iPhones in the holiday quarter, compared to the Wall Street average of 78 million units. For the March quarter, UBS Research has reduced its production estimates from 43 million to 42 million units. Since the iPhone SE will be nearly a year old in March 2017, UBS expects the average selling prices (ASPs) to remain higher in March quarter. The ASPs will be further helped by strong sales of higher-priced iPhone 7 Plus.

In other product categories, UBS Research expects the iPad sales to decline 5% in December quarter compared to the same period a year ago. KGI Securities analyst Ming-Chi Kuo recently said in a research note that the iPhone 7 demand would decline significantly in November and December. The analyst’s prediction was based on improved availability of the iPhone 7 and 7 Plus in most parts of the world.

Upgrades will pick up only in 2017

Kuo said the 5.5-inch model was out of stock during the first few weeks because of limited production rather than strong consumer demand. KGI Securities estimates that the iPhone 7 and 7 Plus sales would fall between 70 million and 75 million units by the end of December quarter. Kuo believes the iPhone suppliers would cut down their shipment forecasts by 5% to 15% in the last two months of 2016.

UBS Research said in its note that the iPhone upgrades would pick up in 2017 with the release of the iPhone 8. The 2017 iPhone is expected to have an all-glass design, an OLED display, and augmented reality. While most analysts have been bullish on the iPhone 8, Rod Hall of JPMorgan said in a research note that the next year’s flagship iPhone will have lower margins due to a higher production cost. Apple is expected to switch from LCD to OLED display panels, which have a relatively lower yield rate.

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