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Apple to halve iPhone X output on weak holiday sales

Cut will likely impact Samsung, Sony and other parts suppliers

The iPhone X on display at the Apple Union Square store in San Francisco.   © Getty Images

TOKYO -- Apple will slash its production target for the iPhone X in the three-month period from January by half from the more than 40 million units envisaged at the time of its release in November.

The U.S. tech giant notified suppliers that it had decided to cut the first-quarter production target to around 20 million units, in light of slower-than-expected sales in the year-end holiday shopping season in key markets such as Europe, the U.S. and China.

The iPhone X, Apple's first smartphone equipped with an organic light-emitting diode display, has failed to catch on globally -- something many put down to its hefty price, which starts at $999 in the U.S.

Looking forward, the lackluster sales could result in a delay to the company's plans to introduce OLED screens in other iPhone models.

With components deliveries delayed, Apple had struggled to keep up with demand for the iPhone X immediately after its launch. Apple would not comment to The Nikkei on its production plans for the iPhone X. But rising inventories appear to have pushed the company to sharply slow production.

The iPhone X features facial recognition and wireless charging, but it is widely regarded as lacking in groundbreaking new technologies compared with previous models.

The phone's high price tag is largely the result of the cost of OLED panels made by Samsung Electronics, the sole source of the component. The South Korean giant is currently the only company that can guarantee a steady supply of the screens.

Apple is expected to maintain a total production target of 30 million units for lower-priced models such as the iPhone 8 and 8 Plus.

The production cuts for the X will have a domino effect on manufacturers that supply high-performance components for the handset, with the combined impact expected to run into billions of dollars for the January-March quarter alone.

For example, Murata Manufacturing has been churning out its MetroCirc circuit boards -- key to making the phones as thin as they are -- around the clock since early January. It will start slowing production soon.

Apple's decision is expected to weigh down output of Sony's camera sensors, Kyocera's circuit boards and TDK's batteries as well. It will also be a setback for Samsung's display business, which has enjoyed strong performance so far.

Spot prices of NAND flash memory, another key smartphone component, have dropped roughly 10% since late October. Increased output, coupled with decreased iPhone X-related demand, could cause NAND prices to slide further.

While Apple suppliers have seen little drag on earnings so far, many expect the full impact to hit in April and beyond. Stock investors are already becoming nervous about the impact of weak iPhone X sales on parts suppliers. Following a downgrade to an investment recommendation for Sony last week, other iPhone X-related Japanese electronic parts manufacturers also saw their share prices decline.

In light of Apple's troubles selling an OLED-equipped smartphone, rivals in China and elsewhere could reconsider plans to adopt the technology in new products. The American company itself is thinking about lowering its sales target for OLED versions of new iPhones to be released this year, focusing more on conventional liquid crystal display versions instead. This could also slow the shift by display manufacturers from LCD to OLED technology.

But Apple likely performed strongly in the October-December quarter, given that the iPhone X did not launch until November. Some even expect the company to have outperformed forecasts. The quarterly results will be announced Thursday, U.S. time.

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