Apple Cuts iPhone 5 Component Orders as World Turns to Samsung

Apple has cut orders for iPhone 5 components by half, according to reports. Everywhere Apple turns lately, Samsung is there and dominating.

Apple last month cut orders for iPhone 5 components by about half, according to a Jan. 14 report from the Nikkei, citing an unnamed executive at an Apple supplier.

Apple had originally ordered 65 million iPhone 5 displays, according to Bloomberg, which added that the news sent Apple shares sliding by as much as 4.5 percent in early U.S. trading. The Wall Street Journal, citing people familiar with the situation, added that orders of other components had also been cancelled.

Once, Apple couldn't make devices fast enough to meet demand. Today, it appears consumers in developed markets are already tied to wireless contracts or are buying devices from competitors—or really, Samsung. After a stretch during which the Apple brand seemed untouchable, with not a realistic competitor in sight, Samsung came on fast and strong with its Android-running Galaxy line, first proving itself to be of Apple-caliber quality and cool, and then zooming past the iconic device.

During the third quarter of 2012, Samsung sold 55 million smartphones (and 98 million mobile phones overall) to Apple's 23.6 million iPhones, according to Gartner.

While Apple executives have insisted that great devices, not profits, are the company's driving force, analysts tell a different story of Apple adjusting in ways it previously found unnecessary. While Apple has traditionally introduced its newest iPhone in the fall—which last year gave Samsung a months-long window during which to introduce and sell tens of millions of Galaxy S III smartphones—Canaccord Genuity analyst T. Michael Walkley has reported that the firm believes Apple is planning an early-summer launch for its next iPhone.

Samsung's success has come from offering a variety of devices at a variety of price points, and Walkley also expects that Apple is ready to break from its one-device-a-year model.

"We believe Apple could launch a refreshed iPhone 5 along with a more mid-tiered priced competitive iPhone for prepaid-oriented international markets this summer," Walkley wrote in a December 2012 research note to investors.

Certainly, Apple has already shown evidence of its willingness to adjust.

With the iPhone 5, for the first time in six iterations, Apple increased the size of the iPhone's display, understanding that the device was arriving in a marketplace that Samsung had made accustomed to 4.5-plus-inch displays. The Galaxy S III features a 4.8-inch display—a size that seemed enormous a year ago but now leans toward modest in a field of 5-inch competitors.

Samsung has also found success with 5-inch and 7-inch tablets, and after dismissing the 7-inch form factor—as Steve Jobs, Apple's late Apple CEO and co-founder, famously said that 7-inch tablets would be "dead on arrival"—Apple introduced the iPad Mini, with its 7.9-inch display, in September.

Analyst James Cordwell, at Atlantic Equities Service in London, believes the issue is one of too-few empty hands.

"We're getting close to saturation," he told Bloomberg, adding that the real growth is now in emerging markets—where Apple again faces Samsung.

In China, the world's fastest-growing smartphone market, Apple's share fell from fifth place to sixth during the third quarter of 2012. Samsung holds the number-one position. Part of the issue is that the iPhone isn't sold through China Mobile, the country's largest carrier, though Apple is reportedly closer than ever to striking a deal with the carrier, which understands well the power position that comes with standing between Apple and 700 million-plus subscribers.

According to The Wall Street Journal, Apple CEO Tim Cook met with China Mobile Chairman Xi Guohua Jan. 10 to discuss a deal.

Along with India, China is a market that Nokia is also working hard to court, and in December, China Mobile agreed to carry a version of the Lumia 920.

Nokia has also brought its new Lumia handsets to India. Nokia leads the budget phone market in India. "But in the smartphone category, Nokia has lagged far behind," The Journal reported Jan. 14. While Nokia holds an 11 percent share of India's smartphone market, said the report, citing research firm Canalys, Samsung commands a 50 percent share of the market.

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