This week, The Wall Street Journal validated what those in Apple supply chain ecosystem had already suspected, that the global consumer electronics icon has scaled back supply chain requirements for iPhones.
Citing three informed sources familiar with the Apple supply chain, the report indicates that order forecasts to iPhone suppliers have been pared back in the past several months. According to this report (Paid subscription required): “Component suppliers that rode the iPhone’s boom are now bracing for lower sales.”
Further noted was that iPhone factories had some idle capacity in the final two months of the calendar year when they typically would be all-out. That situation surprised this author since Apple has consistently been good at product demand forecasting.
Major contract manufacturer Foxconn Technology reportedly began dismissing some employees earlier than usual from its Zhengzhou China facility that employs upwards of 200,000 workers. The Provincial government reportedly promised Foxconn $12 million in subsidies to minimize layoffs.
In late June-early July, the WSJ indicated that Apple was planning for a larger initial production run of the next iteration of iPhones, requesting suppliers to support between 85 million and 95 million iPhones for the all-important end-of-year holiday buying season. In 2014, 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. What was unusual for the forecast numbers related to iPhone6S models were the lack of any significant hardware changes it its release, thus the larger numbers would have indicated expectations for increased global demand or additional customer upgrades this past holiday season. In October, Digitimes reported that integrated circuit suppliers were indicating concern for iPhone chip orders.
Based on this latest WSJ report, we logically assumed that Apple’s supply chain planners and Sales and Operations team members are dynamically managing product demand and supply alignment. As readers participating in S&OP process know quite well, sometimes sales and marketing can have rather exuberant expectations regarding product sales volumes for a key quarter, only to change such expectations when actual order volume patterns are known.
With so many global investor eyes on Apple, and with so many supplier fortunes pegged to business volume concerning Apple, the stakes are obviously high and far reaching. This is especially pertinent to newer iPhone suppliers brought in to diversify supply sources and balance supply risk. As we have concluded in many prior Supply Chain Matters commentaries, there are few supply chains that garner wide visibility as that of Apple. So much so that information leaks are actively nutured.
Apple’s upcoming report of financial results related to this past holiday quarter are therefore a rather important indication of the consequences of iPhone focused supply chain activity in the first-half of 2016.
Bob Ferrari
