Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

It's certainly not time to panic about Apple Inc. But mild worry is reasonable. 

Stock prices of Apple and some of its suppliers dipped Thursday morning on the latest sign of mild demand for the iPhone 8, one of two new smartphone models the company debuted last month. The Economic Daily News in Taiwan reported Apple has slashed orders linked to iPhone 8 models by more than 50 percent for the rest of this year.

It's worth noting that publications tracking the network of Apple's Asian partners aren't always reliable. But it's clear investors are concerned about a series of data points about initial demand for the iPhone 8. Another reason for frowning was a Wall Street Journal report that the cellular connections for the latest Apple Watch were cut off for new subscribers in China. Apple shares have declined about 4 percent from an all-time high set Sept. 1.

To answer the inevitable question: Yes, there are definitely some would-be iPhone owners who are waiting to see Apple's other new model, the iPhone X, which goes on sale starting Nov. 3 in many countries. The iPhone X is a step up from the 8 in both price (at $1,000 and up) and in new features, including a different type of high-resolution screen and facial recognition technology. 

Hope and Fear
Apple shares have declined from a summer high as investors worried about the later-than-expected debut of the iPhone X
Source: Bloomberg

But the reality is Apple will sell something like 250 million new iPhones in the next year. And it's unlikely Apple can even produce 250 million iPhone X models in a year. There simply aren't enough of the essential parts for the new phone, and both Apple and its suppliers will inevitably be slower in churning out phones with relatively novel components and new features. There already have been reports of iPhone X production bottlenecks. 

That means Apple needs the iPhone 8 to be an appealing alternative to people who want a new smartphone but can't buy an iPhone X, either because they can't stomach the cost or because there aren't enough to buy. And while the iPhone 8 has been available for less than one month, the early signs of interest aren't encouraging. 

Along with the fresh report about Apple slashing iPhone 8 orders, AT&T Inc. last week said the number of its contracted mobile subscribers that had swapped out old smartphones for new models fell by 900,000 in the third quarter from a year earlier.

That decline in people trading up for newer phones included about a week of sales for the iPhone 8 models. AT&T's disclosure defied analysts' expectations that the share of upgraders would start to inch up, with Americans eager to grab newer and cooler smartphone models. 

Great Expectations
Analysts expect the new iPhone models will boost the company's smartphone sales after a couple of years of declining or tepid growth
Source: Bloomberg and Mizuho Securities (for FY 2017 and FY 2018 estimates)
Note: Apple's fiscal year ends each September

Verizon Communications Inc. on Thursday had similar news. It said about 5.5 percent of its contract mobile-phone customers got a new device in the third quarter. As with AT&T, that percentage was lower than the year before, according to Nomura Instinet figures. That's not a great sign for Apple. If the iPhone 8 were in hot demand, then I would have expected the mobile-phone companies' upgrade figures to start ticking up rather than down. 

Apple will report its own third-quarter numbers on Nov. 2, the eve of the iPhone X launch. The company will no doubt face questions about whether it made a mistake by debuting two new iPhone models at the same time, setting up the iPhone 8 to be the less-appealing kid sister to the iPhone X. 

Remember, the stakes for Apple and its new iPhone lineup are extremely high. Apple investors have been sending the stock price up for more than a year on expectations that the 2017 iPhone lineup would unleash a "super cycle" -- a crush of iPhone sales not seen in several years. The optimists said people who have been content to hold onto their aging iPhones would see the cool new models and rush to trade them in. 

That could still happen when the iPhone X goes on sale. But the iPhone 8 was also an essential element of the "super cycle" thesis, and right now that model doesn't look like it's playing its part. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net