A published report by Nikkei Asian Review indicates that Apple has informed its supply network to prepare for 20 percent less total iPhone production units planned for market release for the latter half of 2018.
This report, at face value, should not be concerning since Apple’s sales and operations planning (S&OP) team has demonstrated abilities to dynamically adjust the supply network. Apple has further, indicated a shift in its business model to emphasize more content services to drive revenue growth.
Readers of Supply Chain Matters may recall that in planning for the 2017 iPhone new product introductions, Apple initially forecasted an overall optimistic product forecast, but throttled back that forecast. S&OP teams had to deal with a later than planned introduction of the then new tenth anniversary edition iPhone, which forced contract manufacturer Foxconn to have to downward adjust the number of phones that could be assembled in October and November.
In the end, Apple sold 77.3 million iPhones in the all-important final quarter of 2017. Thus, from our lens, pegging initial production forecasts at the 80-million-unit level seems prudent. As with any other world-class supply chains, Apple practices a robust supply chain segmentation strategy, thus there are built-in flexibilities if production volumes would have to be raised or lowered later this year.
More than likely, they could be adjusted downward yet again, depending on this year’s new product introduction activities. Nikkei and other outlets indicate Apple’s intent to introduce three new iPhone models this year. Two of these new models reportedly will feature complex OLED displays, while all three would feature a TrueDepth 3D sensing camera system to activate Face ID. The latter turned out to be the most troublesome challenge in last year’s introduction of the iPhone X, evoking a schedule delay of 4-5 weeks. As the Nikkei report indicates, the good news is that this year, Apple is informing supplier partners earlier regarding the OLED screen design decision. The report indicates that the OLED models are currently scheduled to be ready for initial ramp-up assembly in July, at least a month earlier that last year.
The Nikkei report also indicates that all three new models are planned for initial shipping availability in September.
Similar to last year, three separate contract manufacturers, Foxconn, Pegatron and Wistron will be sharing final assembly responsibilities as part of the overall output segmentation strategy.
News of this latest Nikkei report caused an initial selloff in Apple stock. That is interesting, since in April, a similar report of cutbacks in production precipitated a similar selloff, only to bounce back on other positive news from Apple. So, goes today’s business world of the value of gaining inside information on the most valuable businesses.
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