iPhone 16 demand warning! Barclays cuts orders for key components by 3 million, Apple's target price slashed by 20%

Wall Street remains divided on the demand outlook for Apple's new generation iPhone, with some analysts bullish on the new AI features provided by Apple's artificial intelligence (AI) system Apple Intelligence, expecting them to drive upgrade cycles, while others are concerned about weakening demand for new devices, with Barclays recently issuing a warning.

Barclays analysts led by Tim Long and George Wang revealed in a report released this Tuesday that they have completed an investigation into the iPhone supply chain and found that Apple may have cut production of the iPhone 16 for the quarter ending in December due to lower-than-expected demand, leading to significant cuts in orders for key components.

The report stated that the investigation of the supply chain revealed that a top Taiwanese supplier may have been significantly cut by Apple,

"We believe that Apple may have just cut production of key semiconductor components for the (quarter ending in December) iPhone by approximately 3 million units."

In addition to the Taiwanese supplier mentioned above, the report also noted that the shortened delivery time for the new iPhone is an indicator of weak demand, stating:

"Our investigation indicates that orders for the iPhone for the quarter ending in December from a major Taiwanese supplier have been reduced. We have previously discussed the shortened delivery time for the global iPhone 16 model, and we believe that both indicate weaker demand for the iPhone 16."

Barclays analysts explained in the report that if the investigation is correct and Apple's related order cuts are confirmed, this would be the earliest order cut in recent cycles, as Apple typically makes its first order adjustments in early or mid-October.

The report concluded that the initial sales of the iPhone 16 were weak, partly due to the fact that the Apple Intelligence features will not be launched in China and Europe this year.

"Overall, the decrease in iPhone production, weak sales, and shortened delivery times all indicate a softer start to the iPhone 16 cycle due to weak consumer spending, macro pressures, and competition, leading to negative changes in the product lineup. The Chinese version of Apple Intelligence will not be launched until 2025, which may weaken the early enthusiasm for the iPhone 16 in this important market. Europe may also gradually launch AI features by 2025, which maylimit people's enthusiasm for new devices**."

After the release of the Barclays report, Apple's stock, which had just surged 10.6% in the third quarter, had a "black start" in the fourth quarter. On Tuesday, October 1st, Eastern Time, Apple's stock opened lower and continued to decline, opening down by about 1.5%, falling by over 3% in early trading, dropping nearly 4% at midday, before narrowing the decline, ultimately closing down by 2.9%, erasing all gains from Monday's rebound and falling from the closing high set on July 16 after three consecutive trading days of gains on Monday

Barclays maintains a underweight rating on Apple in its report, and lowers Apple's target price to $186, which is one of the lowest target prices given by analysts currently, a decrease of about 20.2% from the previous target price of $233, equivalent to an expected drop of about 20% from the closing price on Monday.

Also on Tuesday, Citigroup lowered its iPhone sales expectations for the quarters ending in September and December, but raised expectations for the quarters ending in March and June 2025.

Citigroup stated that with the release of Apple Intelligence in late October in the United States, and a potential major update to Siri next year, Citigroup still believes that in 2025, with the launch of iPhone 17, there will be a wave of consumers upgrading their iPhones. Consumers may wait to see how Apple Intelligence affects their daily interactions with their phones before upgrading.

Prior to the reports from Citigroup and Barclays, recent reports from Morgan Stanley and JP Morgan helped drive Apple's stock price up on Monday.

Morgan Stanley analysts noted that delivery times for the iPhone 16 Pro and Pro Max models are stabilizing, which is an unexpected positive development. JP Morgan analysts stated that the demand trend for iPhones is improving