Supply Chain Matters highlights a report indicating that Apple has once again, quickly readjusted downward its production forecast for the newly released iPhone model. The important question to explore is whether this is a demand or supply driven decision.
Development
Today, financial and other media have been highlighting a published report by Bloomberg, citing sources familiar with the matter, indicating that Apple is backing off plans to increase planned production of the new iPhone14. Indicating that plans are not public, the report indicates that suppliers were told to pull back from initial plans to produce 96 million phones in the second half of this year. Rather, the plan seems to be the production of 90 million iPhone14 units which is in-line with Apple’s original forecast this summer.
Apple itself declined to comment on this week’s Bloomberg report, while the company’s stock, along with some larger key suppliers, have taken a dip on this news as global financial markets remain jittery to growing global economic and geo-political concerns.
Supply Chain Matters highlighted in December of last year a somewhat similar Bloomberg report published in early October 2021 indicating that Apple iPhone13 production targets could be trimmed by as many as 10 million devices in Q4 of that year because of prolonged semiconductor chip shortages. Similar to this year, the consumer electronics and smartphone provider had initially planned with suppliers for the output of 90 million units of the then released iPhone model. In early November, we updated readers to a report that Apple had initiated a supply allocation plan regarding ongoing limited supplies of needed semiconductor devices for the iPhone 13. Nikkei Asia, citing multiple informed sources at the time, reported that Apple was internally prioritizing allocation of key processors toward iPhone 13 production output at the expense of Apple iPad and older iPhone models. Such a component allocation plan was similarly initiated in 2020 to support the initial production volumes for the then Apple iPhone12.
In reporting quarterly and annual financial performance for Q4 and full year 2021, CEO Tim Cook indicated that the company could have sold more iPhone13’s if it were not for the critical supply constraints.
The key question here for global supply chain high-tech product teams is whether this production decrease was prompted by a demand setback, a supply setback, or both?
Let us explain.
This latest Bloomberg report indicates that initial demand for the iPhone14 across China over the first three days of availability was down 11 percent based on predecessor model sales history. Yet, the report indicates that initial demand has been centered on the more expensive and feature-rich model. Similarly noted is global demand for personal electronics has been suppressed by high inflation and recession concerns. Cited IDC data indicates that the smartphone market is forecasted to contract 6.5 percent this year. An IDC Research Director indicated to Bloomberg that high inventory in distribution channels and muted demand has OEM’s “panicking and cutting their orders drastically for 2022.”
Global fab chip producer TSMC has been Apple’s prime processor chip supplier and indications were that the Taiwan based supplier was keeping up with Apple’s production requirement needs. The stock of TSMC reportedly dropped 2.9 percent on this latest news.
Concluding Thoughts
The more likely conclusion is that this development is added evidence that the prior multi-year supply constrained planning and production environment may indeed be shifting to a demand constrained or product unique environment for multiple industries. Solid evidence already exists in the consumer focused products sector and now in the consumer electronics and high tech sector.
Integrated business planning along with sales and operations planning teams need to continue to increase their diligence in short and longer-term business and supply chain scenario planning to better prepare and effectively manage resource and working capital needs for the coming year. Inventory management and resource planning will remain a key concern. It is obvious that Apple continues to provide a lot of supplier clout and a forecast reduction late in the production planning process likely has to be tolerated as doing business with a major customer.
Our research arm will soon be producing a series of advisories and blogs on how to best prepare and manage industry supply chains for the coming year and beyond.
Bob Ferrari
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