In a prior Supply Chain Matters commentary on September 13, we highlighted Apple’s long awaited new product release announcements regarding its new iPhone lineup. We further expressed our observation that given the implications of five separate smartphone models being available for consumers to purchase during the upcoming holidays, that the coming quarters 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. 

New information is coming to-light regarding the 10th Anniversary iPhone X model that will surely add to ongoing planning challenges.

Last week, Barron’s cited a Raymond James chip analyst summary of travels among handset, networking, and supply chain players in Asia. That analyst reported additional delays in iPhone X production over and above prior leaked information relative to such delays. The indication was that production for the new premium model was now believed to begin in mid-October, a month later than previously believed, and about two months later than supply chain expectations set in June. Such news implies that availability of the new model will likely shift to later in the December quarter with some questions as to how much market availability there will be. Pre-ordering for the premium model is scheduled to begin October 27.

Yesterday, Taiwan based Digitimes, citing upstream component manufacturing sources, reported that Apple’s planners instructed component suppliers to cut-back on component shipments previously planned for the iPhone X amounting to 40 percent of the quantities original planned in initial production runs. Sources further indicated that despite the call for slowdown: “some suppliers still need to step up production to meet the 40 percent requirement due to low yield rates at their production lines, the sources indicated.” Digitimes further notes that this same forecasting pattern occurred in the introduction of the iPhone 7 in 2016 when Apple cutback on supplier forecast needs and later pulled-in remaining orders 1-2 months later.  Readers may recall that Apple eventually lost sales opportunities for highly sought iPhone 7 Plus during the holiday quarter of 2016. CEO Tim Cook indicated to analysts that the company clearly under forecasted demand of the Plus model and that it impacted results.

The report concludes that planners are waiting to assess pre-sale orders of the X model as well as sales performance of the two iPhone 8 models that were also announced and are now available for customer pre-ordering.

Meanwhile, current reports from business media point to a mixed picture of initial iPhone 8 demand based on analyst and market influencer reviews as well as pre-orders, with the theory that consumers may not be so impressed with lack luster added features, and instead may be waiting to assess the availability of the X model.

Yesterday, The Wall Street Journal reported that: “Consumer disappointment with Apple’s new iPhone offerings have sent shares of the tech giant’s key suppliers in Asia, notably Taiwan, further into the red as earlier hopes of a supercycle for the flagship device have faded.” While Apple’s shares have been down a cumulative 5.5 percent, shares of Hon Hai Precision, parent to Foxconn have slide 11 percent thus far in the current month. Likewise, case producer Catcher shares reportedly has seen a 25 percent plunge while Hong Kong based AAC Technologies share have slid a combined 11 percent.

A final significant piece of information involves The Wall Street Journal citing data from Susquehanna International Group research that pegs the iPhone X component costs at $581 compared to a $248 component cost for the iPhone 7. The implication made is that Apple’s profit margins for the premium version are slimmer than on existing lines.

All this current streaming information reinforces the co-mingling of both classic product management strategy and ongoing sales and operations planning challenges. If the iPhone X has limited availability through December, Apple’s loyal consumers will have to decide whether an upgrade to the iPhone 8 is their desire. Wall Street analysts are already showing tendencies toward cautious expectations for Apple’s profit performance in the holiday quarter, not to mention concerns as to product availability. Air freight carriers are obviously jubilant at the prospects for flying shipments of newly produced iPhones to geographic markets.

Indeed, the Apple supply chain is again encountering another significant test in adaptive planning and in meeting expected revenue and profitability financial expectations.

Bob Ferrari

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