Report of iPhone 13 production cut slices Apple in the aftermarket

apple production cut aftermarketFrom Debby Wu’s “Apple Set to Cut iPhone Production Goals Due to Chip Crunch” posted Tuesday on the Bloomberg wire:

Apple Inc. is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units as prolonged chip shortages hit its flagship product, according to people with knowledge of the matter.

The company had expected to produce 90 million new iPhone models in the last three months of the year, but it’s now telling manufacturing partners that the total will be lower because Broadcom Inc. and Texas Instruments Inc. are struggling to deliver enough components, said the people, who asked not to be identified because the situation is private.

The technology giant is one of the world’s largest chip buyers and sets the annual rhythm for the electronics supply chain. But even with strong buying power, Apple is grappling with the same supply disruptions that have wreaked havoc on industries around the world. Major chipmakers have warned that demand will continue to outpace supply throughout next year and potentially beyond…

Apple shares slipped as much as 1.6% to $139.27 in late trading after Bloomberg reported on the news. The stock was up 6.6% this year through Tuesday’s close. Broadcom and TI also dipped in after-hours trading.

My take: If Apple earnings are around the corner, there must be rumors of production cutbacks.

Cue the bar graph (not specifically about Apple):

26 Comments

  1. Tommo_UK said:
    What’s the “Apple is doomed” counter sitting at? Who’s the custodian of the records these days?

    1
    October 12, 2021
  2. Troy Thoman said:
    It’s funny because when you read the Bloomberg report, it says “is likely to slash its projected iPhone 13 production targets for 2021.” That’s an absurd and sounds like a BS rumor… but was something that was mentioned at the last earnings call. Unless supply and demand balance happens this quarter (which there is no chance it will), I’d be surprised about a cut in production and the lead times don’t seem extensive enough to believe the rumor. If the lead time was 3 months, then I could believe it.

    2
    October 12, 2021
    • Rodney Avilla said:
      “ If the lead time was 3 months, then I could believe it.”

      This is an important point, one which Bloomberg fails to grasp. We know demand is high based on several surveys of prospective iPhone buyers from different demographic groups. Yet lead times are not consistent with major chip shortages.

      0
      October 13, 2021
      • David Drinkwater said:
        It’s simpler than that.

        Let’s claim that an iPhone is built from one hundred parts. One is from TI and one is from Broadcom (to follow the logical chain of the article, not to name any particular suppliers, because I guarantee I have no relevant knowledge: this is just an example attempt at explanation). The rest come from somewhere else.

        Furthermore, let’s claim that the lead time for a TI or Broadcom part is 16 weeks (not impossible: 12 weeks to Fab the wafer from bare silicon, 2 weeks to test and outgoing inspect it, 2 weeks to get it from US shipping into the Chinese supply chain: shipping, customs, some bullsh!it over here, and some bullsh!t over there): it could happen, but 12 weeks is more likley. No matter. Let’s just claim “a long lead time”.

        Now let’s claim that the lead time on one of the 100 parts (or even 50 of the 100 parts) is two weeks. Apple does the math and says: “12 weeks minus two weeks means we place no orders for the next ten weeks, because we do not want your inventory sitting on our shelves (I mean, you can build if you want to, betting on the come, but we won’t place any orders until then … but when we do, you had better be ready to meet them)”.

        Poof, the orders to certain vendors disappear. But the demand for product is unchanged.

        Some of my colleagues have said in the past that “you do not want to have Apple as a customer”. This makes me sad, but I still do not want to argue with an 800 pound gorilla.

        I am NOT inside the Apple supply chain, I have no information worthy of an NDA, but I can put two and two together, and they add up to 90% … or whatever.

        Tim Cook: “Our supply chain is incredibly complex”.

        Y’all know the rest.

        3
        October 13, 2021
    • Bart Yee said:
      What is very possible is one portion of the supply chain in China could be seeing a cutback (more due to power restrictions in Parts of China?) and that portion may be distributed to other makers in China, India, or elsewhere. We knew earlier in the year (from a Bloomberg and others “report”) that Apple was requesting almost 20% more iPhone production from 75M to 90M based on then existing component orders and stockpiles.

      I believe Apple had already put those expected components into production plans and assembly. However, given fluctuations in Foxconn factory output due to China electricity restrictions, consistent production has been affected. It would be prudent for Apple to diversify iPhone production away from outage prone areas and move them elsewhere in China or other countries that are less affected or subject to other disruptions.

      Now if component supply vendors have faltered or reduced availability sufficient to fully supply Apple’s expanded production needs, then some creative rearrangement of supply, or diversion from slower sellers like the mini or even iPads would be required to bolster supply for iPhones until more components are secured.

      I suspect partial monthly or quarterly supply allocations may now become the norms, even for Apple, until either demand stabilizes (which isn’t likely given current demand trajectories), or supply somehow increases, which just doesn’t seem physically possible in any short 6-18 month timeframe given current foundry and fab status. Apple, like other industries, may now be between the rocks and the hard places.

      Please pardon my technobabble language, I’ve been watching a lot of Star Trek lately while sweating out the Los Angeles Dodgers series tying win.

      0
      October 13, 2021
  3. Bart Yee said:
    Meanwhile, “Toymaker Hasbro Inc on Tuesday said longtime Chairman and Chief Executive Officer Brian Goldner died, two days after he went on medical leave.

    In a statement last year, Goldner said he had been under continued medical treatment following his (prostate) cancer diagnosis in 2014.

    Board member and former CEO of marketing firm InnerWorkings Inc, Rich Stoddart, has replaced Goldner on an interim basis.

    Goldner, 58, joined Hasbro in 2000 and was appointed CEO in 2008, the company said.”

    And “Louisa Cheang Wai-man, the former Hang Seng Bank CEO, died last week at the age of 57, the lender said.”

    We are lucky to enjoy the fruits of our investments and work in our later years. These two leaders didn’t get that chance. RIP to both and condolences to their families and colleagues.

    3
    October 12, 2021
    • Gregg Thurman said:
      Thanks Bart, for a touch of reality.

      1
      October 13, 2021
    • Jerry Doyle said:
      @Bart Yee: Thanks Bart Y for your comments. They remind us of the ephemerality of life and the need for putting things in proper perspective in our lives.

      1
      October 13, 2021
  4. Robert Paul Leitao said:
    It’s a “buy” opportunity on any sell-off on this news. It doesn’t change the demand scenario. It just elongates the time until supply-demand equilibrium is reached sometime in the March quarter. Apple trades on revenue and earnings expectations. Nothing in this news changes the outcomes for the first six months of the fiscal year. We are in week three of the 13-week fiscal quarter and in week three of the 26-week peak demand period for iPhones.

    8
    October 12, 2021
  5. Jeez, so we’re not going to get the stock price run up to Earnings and then a sell off on record-breaking sales in every geographic market? Could we see sell the rumor buy the news (actual performance) this time? Nah.
    Bloomberg’s creative writers provided little substance to their story but who needs facts anyway? The ongoing chip shortage is unlikely to cause many (any?) iPhone buyers to go with that ASUS or Samsung model. Apple garden dwellers patiently wait and buy the 13, or the 14 or the 15. Carriers will continue to juice this multi year 5G upgrade cycle. Nobody is going anywhere but we’ll all need patience.

    5
    October 12, 2021
  6. Gregg Thurman said:
    Speaking of upgrading, I met an elderly (our age group) couple vacationing in Coeur d’Alene today. They asked if I’d take their picture. I said yes and they handed me a nine year old iPhone 5. It had its own Medi-Care card.

    What was really funny is that they actually showed me how to take a picture with it (believing I didn’t know how), and told me how they got a new battery for it for only $35. Until now I thought stories about iPhone users like these people were just rumors. I guess some rumors are true, no matter how outlandish.

    2
    October 13, 2021
    • Jerry Doyle said:
      @Gregg Thurman: I still use my iPhone 5 & 6 when doing aerobics on the treadmill, kayaking and other outdoor activities where the likelihood rises for an accidental drop of the device. (I traded my iPhone 10 in on my new iPhone 13 Pro). Both the 5 & 6 iPhone devices are registered in my iCloud account. I wonder if the elderly vacationing couple you mentioned still have their device registered. I always assumed the count we hear mentioned on the number of iPhone devices in-the-wild is the number extrapolated from iCloud account registration. Right?

      1
      October 13, 2021
    • There were 5 iPhone 6 users in my immediate circle prior to the iPhone 13 launch. Only 1 remains, 3 upgraded and one passed away of old age. My friend unfortunately, not his phone. Change is a challenge to workers in their 70s & 80s. Each of the examples above is/was a licensed professional still working. It wasn’t for lack of bread like the Grateful Dead. iPhones & iPads. I still have an original iPad (April, 2010), it still run 5 hours on a charge, plays music & makes an excellent, if heavy, coffee table photo album.

      1
      October 13, 2021
  7. Daniel Epstein said:
    Funny that this story comes out a couple of days before Apple is holding a product event expected to announce updated Macs etc. I guess the supply chain is not preventing Apple from updating some products even if they can’t deliver others fast enough. The early overreaction to this report seems to be moderating before the market opens today. In the past I have found that there is some grain of truth in these future production cut stories but somehow Apple the company manages to perform well in the Quarters that everyone gets so worried about. The poor wording of the report about the iphone and we don’t know what the actual order level was before this means I expect a very strong Apple Xmas Quarter despite constrained products.

    0
    October 13, 2021
  8. Kemble Widmer said:
    Phillip,
    With respect, I take issue with your headline “Report of Production CUT”. The word “cut”, which implies a change in forecasted demand, appears first of course in the Bloomberg article along with “slash”, exaggerations intended to sell articles.
    Upon reading the article it is clear that at MOST, there are certain component shortages causing production delays, resulting in missing original end of year production targets. Problem is, numerous articles on Yahoo Finance and elsewhere already running with snippets like “Apple slashes production”, “ iPhone woes”, etc. etc. Happens every year of course, although slightly different this year as the source rumor is component shortages instead of Apple slowing production down as demand/supply equilibrium nears.
    We should start calling this our “yearly buying opportunity”. Nothing more, nothing less.

    2
    October 13, 2021

Leave a Reply