Supply Chain Matters provides a significant update in our ongoing content stream related to Apple’s latest new product introduction and manufacturing ramp-up related to the iPhone lineup. In prior blog postings on September 13 and on September 26 we expressed our observation that given the implications of five separate iPhone smartphone models being available for consumers to purchase during the upcoming holidays, that the coming weeks will present Apple’s supply chain, sales and operations planning and supplier management teams their most significant challenges to-date in insuring revenue and profitability objectives are achieved.  Continual streams of information have pointed to specific production challenges with the newly announced iPhone X (representing ten) model.

Apple stock took a nosedive yesterday as the market began to chew on the latest news and speculation from various supply chain channels and analyst’s updates that indicated that initial sales of the iPhone 8 may not be tracking as expected. Seeking Alpha cited a published report from the Economic Times, A Taiwan based publication, citing an unnamed source indicating that there is talk of a 50 percent cut in production forecasts for the iPhone 8. Some equity analysts speculate that Apple is cutting production capacity for the iPhone 8 to shift more added capacity in the production ramp-up of the iPhone X. Others speculate that initial demand for the “8” model is suspect.

Meanwhile, KGI Securities, widely followed in matters related to Apple, now indicates in an updated client report that Apple will likely ship 2-3 million units in conjunction with the iPhone X initial shipping window that begins at the end of October. We previously highlighted to readers that contract manufacturer Foxconn had begun initial shipments of the premium model this week, in line with the revised schedule, but in much lower quantities than originally anticipated. Once more, KGI now identifies other component shortages and production challenges impacting the premium model. Beyond the well reported issues with the 3D sensors, issues were noted with the flexible printed circuit boards needed for the antenna and wide-angle camera.  An initial supplier of the circuit board reportedly failed to pass Apple’s quality and performance checks. KGI has now suddenly lowered its Q4 iPhone X shipping estimates to between 25-30 million units for Q4. The estimate a month ago was 40 million units.

At this point, Supply Chain Matters is of the view that the current developments related to the introduction of the iPhone X are not a sales and marketing driven buzz, but rather represent some significant challenges related to design for supply chain and high-volume manufacturing. The component designs may have been elegant and noteworthy but there is building evidence that perhaps not enough time was allocated for the supply chain ramp-up and production yield evaluation processes.

One thing is certain, consumers may well see lots of tenth anniversary iPhone delivery commitments extending out beyond Q4. If orders do meet available or expected inventory, expect all forms of priority air shipments making their way to retail and consumer destinations all the way to the day before Christmas.

Even the globe’s most visible supply chain has its own share of continuous challenges.


Bob Ferrari

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