The iPhone is experiencing weak demand in Asia, especially China. After cutting revenue forecasts, Apple is now reducing production too.
Less than a week after slashing revenue forecasts for the first quarter of 2019, Apple is now cutting down on the production of new iPhones as it expects demand to dip further. Apple has told its suppliers to reduce the iPhone production volume between January and March by almost 10 percent, according to Nikkei Asian Review.
Production of its new models, iPhone XS, iPhone XS Max, and iPhone XR, as well as old ones would be brought down to 40-43 million units from an earlier projection of 47-48 million units.
This is the second time in two months that Apple has had to cut down production volume of iPhones, signalling a deeper problem in its value chain. The level of revision will reportedly be “different for each supplier and depends on the product mix they supply.”
Of late, analysts too have been lowering the iPhone sales forecast. Last month, Citi Research estimated that the production of the iPhone XS Max (the priciest model) would be cut down by almost half in Q1 2019.
“The material cut in our forecasts is driven by our view that the iPhone is entering a destocking phase, which does not bode well for the supply chain,” Citi stated in its report.
In last year’s January-March quarter, iPhone overall production volume was marginally better at 52.2 million units. Hence, the year-on-year contraction has been more than 20 percent. Apple also announced in its last earnings call that it would stop disclosing iPhone shipment numbers from now on.
Last week, when CEO Tim Cook announced that Apple was revising its revenue expectations for Q1 2019 on account of low demand in Greater China, it sent the stock into a free fall. More than $75 billion was wiped off its valuation in a single day. Since October, the iPhone-maker has lost more than $460 billion in market cap, and has ceased to be the most valuable corporation in the world.
“We did not foresee the magnitude of the economic deceleration, particularly in Greater China. We believe the economic environment in China has been further impacted by rising trade tensions with the United States.”
Analysts reckon that Apple’s problems have been compounded by the fact that it has priced itself out of the market, especially at a time when Android phones are consistently hitting the sweet spot between specs and price. As Android’s user base expands in China and other emerging markets across Asia, Apple is gradually finding itself redundant among millennial users who look for value-for-money products.
Neil Shah, Research Director at Counterpoint Research, states, “iPhones have gone costlier and the features and specs aren’t that compelling. The install base of Android has grown vastly; the new customer base (for Apple) is not coming.”
Apple is yet to issue an official statement on iPhone production.