The Wall Street Journal, citing informed supplier-based sources, reports that Apple is planning for a larger initial production run of the next iteration of iPhones. According to the report, Apple is requesting suppliers to support between 85 million and 95 million iPhones for the all-important end-of-year holiday buying season that ends at the end of December, despite expected modest hardware changes.
Last year, Apple planned its supply chain output for a range of 70-80 million phones, and actually shipped 74.5 million smartphones during the holiday quarter. That was a 45 percent increase from the year ago holiday surge quarter. The iPhone6 incurred its own set of production ramp-up challenges including a last-minute design change involving its larger screen displays. There was the usual production yield challenges associated with the fingerprint scanner and with the LCD displays. During its most recent fiscal quarter, Apple shipped 61.2 iPhones, fueled primarily by emerging market demand primarily from China, Hong Kong and Taiwan.
The WSJ indicates that hardware changes are expected to be less noticeable and that Apple is in-essence betting that consumers will flock to upgrade their existing iPhones. Display sizes and screen resolution are expected to be unchanged.
Further reported is that contract manufacturer Hon Hai Precision (Foxconn) is in the process of hiring additional workers for its Zhengzhou China facility, in anticipation of beginning volume production starting in August.
The report confirms that a third contract manufacturer, Taiwan based Wistron Corp. will supplement production needs this year. In an April Supply Chain Matters commentary, we echoed a published report from Taiwan based Digitimes indicating that Apple was expected to adjust its lower-tier supplier Q3 order volumes for both the iPhone 6 and the newly released Apple Watch to minimize the risk of too much volume dependency on any one single supplier, as well as to meet or maintain targeted gross-margin goals. Noted was that Apple had invited both Compal Electronics and Wistron, noted contract manufacturers in laptops and other consumer electronics, to join its supply chain as augmented suppliers. The report further indicated that Apple’s two major PCB partners, Zhen Ding Tech and Flexium would have their order rates adjusted while suppliers Largan Precision and Advanced Semiconductor Engineering, which reportedly have advantages in advanced technology, will benefit from increased orders.
As noted in many of our past commentaries, the ability of the Apple supply chain to support steep new product introduction ramp-ups is predicated on active supplier risk management coupled with supply chain segmentation strategies focused on product margin and profitability goals.
The next test comes in the next five months.