Apple: production deconstruction is less worrying than strong dollar

Reports that Apple may not increase production of its new iPhone range because of weaker than expected demand have caused a minor market commotion. Apple’s share price fell 4 per cent in early trading on Wednesday as the wider S&P 500 rose. The dip is proof of the smartphone’s continued importance to the company despite Apple’s efforts to diversify.

For investors, however, Apple’s production plans are conjecture. It has not provided iPhones sales numbers since 2018. It is not possible to distinguish between rising prices and rising sales when looking at revenue. Third-party estimates suggest healthy demand. Counterpoint Research claims that Apple sold 238mn iPhones last year, up from 201mn the previous year

Increasingly complicated launches make things even more difficult. Instead of one annual upgrade it offers multiple designs. This year only Pro models came with the most powerful A16 Bionic chip.

Morgan Stanley reports that waiting times for Pro models are the longest of any iPhone sold in the past six years, although waiting times for other models are nowhere near as long. It is not surprising that Apple fans interested in the latest product might not care much for updates with fewer bells and whistles.

As long as demand for the expensive Pro versions is high, Apple has little to worry about. Although it did not raise US prices from last year it will record an impressive revenue increase if demand for the most expensive models is particularly high.

Steady sales are necessary if Apple is to retain its reputation as a market haven amid potential global recession. The signs are good. Almost a quarter of sales come from services, where subscriptions provide recurring revenue.

This year, Apple is expected to report net income above $100bn for the first time. Much of that will flow back to investors via share buybacks. The question is what will happen when overseas sales are converted into dollars. Apple watchers should be more concerned by the strength of the dollar than demand for phones.