iPhone sales expected to drop in 1st half of 2017 without new SE model, Apple to put margin pressure on suppliers

1. We are conservative about the sell-through of the 4.7” iPhone and Apple’s market share in China. As such, we estimate 1Q17 iPhone shipment volume of 40-50mn units, lower than the 51.2mn units in 1Q16.
2.   Shipment volume in 2Q16 came in higher than expected thanks to upbeat demand for the iPhone SE. However, in order to keep gross margin at a high level and to avoid cannibalization of high-end models, we do not expect Apple to launch an upgraded iPhone SE in 2Q17. Without contribution from a new model, we forecast total iPhone shipment volume will reach 35-40mn units and fall YoY in 2Q17, lower than the 40.4mn units in 2Q16.

Falling sales may force Apple to exert pressure on its suppliers to reduce costs starting this month or next…

1. For those with weak bargaining power, such as FPCB and panel-related makers, the price cut is inevitable given fierce competition due to numerous suppliers and generally low capacity utilization in 1H17. We note that most iPhone suppliers fall into this category.
2.  However, a select few suppliers that have stronger bargaining power with Apple may even be able to raise prices. Take Samsung (KR) for example, the company is the main supplier of 3GB DRAM and 3D NAND flash. As DRAM and NAND flash will likely remain in short supply in 1Q17F, we believe Samsung is unlikely to surrender to the pressure, and may even raise its product prices.
3. TSMC (2330 TT, NT$184.5, N) is one of very few suppliers that won’t be affected by Apple’s pricing pressure as its production capacity was pre-booked. It would be very costly if Apple was to switch to a new supplier.

iPhone 8 or whatever iPhone Apple releases next Fall  will likely be a big release following the 3 years of relatively similar iPhone updates and many expect it to push Apple back into growing iPhone sales once again.