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Major Apple Supplier Expects iPhone Shipments to Fall In 2016

Apple's I Phone 6S : Launch at Apple Opera Store In ParisApple's I Phone 6S : Launch at Apple Opera Store In Paris
The Apple iPhone 6SPhotograph by Chesnot — Getty Images

Apple could be in for a rough year, if one of its largest suppliers is right.

Apple’s worldwide iPhone shipments will reach 210 million units to 220 million units this year, representing as much as an 8.6% decline compared to 2015, Nikkei is reporting, citing a person at a “major supplier” for Apple with knowledge of the company’s iPhone shipment estimates. A Nikkei source added that Terry Gou, chairman at Hon Hai Precision Industry, which, through its Foxconn brand, is responsible for assembling the majority of iPhones, told employees that “demand for iPhone will remain feeble until at least early next year.”

The comments come ahead of Apple’s Worldwide Developers Conference (WWDC), an annual event where the company typically talks about new software. However, at least for many investors, it’ll be hardware they’ll be worried about.

For the first time since the iPhone launched in 2007, Apple reported in its last fiscal quarter that sales were down. In fact, iPhone sales revenue fell 18% year-over-year in the fiscal quarter, declining by nearly 10 million units compared to the prior year.

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While Apple (AAPL) has remained steadfast in its argument that the iPhone will rebound, it was a warning sign to investors. The iPhone accounts for the vast majority of Apple’s revenue and profits. If the company’s smartphone division continues its decline, Apple’s financial health—while still strong—could be put to the test.

China is also proving to be an issue for Apple and its smartphone business. While China accounts for about a quarter of its revenue, the company’s revenue there was down 26% in its last-reported fiscal quarter. Again, Apple put a brave face on the news, but an unidentified source told Nikkei that things aren’t looking well in China. In fact, they might be getting worse.

Nikkei‘s source in China says that Apple’s suppliers have a “build-up” of iPhones that aren’t getting out the door. The source blamed it partly on China’s troubled economy and Apple’s decision to offer so many different color options to Chinese consumers. But competitors, like Huawei and Xiaomi, are finding customers.

Apple might also be facing new issues in the U.S., its long-time stronghold. In a survey released last week, Consumer Intelligence Research Partners (CIRP) reported that iPhone owners are now slowing their upgrades. The research firm found that iPhone owners are now waiting three months longer to upgrade to a new smartphone than they did three years ago.

In the middle of 2013, just one-third of iPhone owners would wait more than two years to upgrade to the latest option. Now, that figure stands at 49%.

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To compound matters, Apple isn’t expected to announce a major iPhone upgrade this year and will instead extend its major updates to once every three years, according to reports. Apple, which previously delivered major smartphone upgrades every two years, was expected to launch such an update this year. Instead, it’s reportedly planning that offer next year, delivering an all-glass iPhone with an organic light-emitting diode (OLED) screen at that time.

All of that—worse-than-anticipated demand, longer upgrade cycles, and a possibly small upgrade this year—could lend some credence to the Nikkei’s sources. But then again, this is Apple. And with one big launch or one big move, anything can change.

Apple did not respond to a request for comment.