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The Apple (NASDAQ: AAPL) supply chain has been rife with rumors that the iPhone maker will end production of its flagship device this year. Noted Apple analyst Ming-Chi Kuo of KGI Securities believes that weak demand for the iPhone X is forcing the company to reduce component orders.
Kuo says production of the iPhone X will be halted later this year when the new 2018 models go into production. This effectively means that Apple will kill its most lucrative product within just one year of release. The company's weaker-than-expected guidance for the quarter that includes March has also added to the speculation, as it is believed that the iPhone maker miscalculated the market size for such an expensive phone.
But in my opinion, it is highly unlikely that Apple will cease production of the iPhone X anytime soon. Here's why:
Image Source: Apple.
The iPhone X is driving ASPs higher
The market was disappointed with Apple's iPhone shipments last quarter. The company shipped 77.3 million iPhones during the quarter including December, down 1% from the prior-year period, when the quarter had an extra week. Wall Street, on the other hand, was looking for 80 million in iPhone shipments, and Apple would have easily exceeded that mark had there been an extra week, like the prior year.
Still, Apple's iPhone revenue shot up 13% year over year during the quarter that included December thanks to a massive bump in average selling prices (ASPs). The ASP of an iPhone during the recently reported quarter jumped 14.5% year over year from $695 to $796. By comparison, the company had seen a far slower jump of just 4% during the same quarter last year, so it is evident that the iPhone X, which starts at $999, has an important role in boosting sales.
Furthermore, the midpoint of Apple's guidance for the quarter including March calls for a 16% year-over-year jump in revenue. This is significantly better than the 4.5% year-over-year revenue jump the company had posted in last year's corresponding quarter.
Clearly, it doesn't make financial sense for Apple to discontinue the production of the iPhone X.
Suppliers expect a massive jump in orders
Recent results from Apple suppliers such as Qorvo (NASDAQ: QRVO) and Lumentum (NASDAQ: LITE) provide more indications that the iPhone X isn't going to be killed anytime soon. Qorvo management, for instance, recently claimed that the company is going to see the "largest actual generation-over-generation content increase we have seen driven by many product categories."