Apple, the popular electronic device maker that seems to sell as many iPhones as it wants, seems to be facing the problem other manufacturers battle with; decreasing demand. However, the company’s woes are not limited to demand as it is facing supply issues as well.
In line with the reality of dwindling demand, Apple has informed its suppliers that it would have to cut its orders for the iPhone 13 range, according to a report by Bloomberg.
People that follow the company know that things aren’t as rosy at Cupertino as Apple had already adjusted its target for the iPhone 13 by 10 million units, down from the 90 million it wanted to produce this year. Apple had been really optimistic with the initial projection, as it usually ordered about 75 million iPhones for the first year of any release.
Apple was hopeful it could make up the numbers next year, but it appears the company has realized people are not so keen to jump on the latest iPhone, which is why it has communicated the reduction in order to its suppliers.
That is not to say Apple will not have its usual massive end-of-year sales, according to analysts who predict a 6 percent jump in sales in the last three months of the year. However, Apple might not enjoy the level of sales that it would expect due to a combination of inflation and the lingering pandemic. A new strain of the Coronavirus has been reported, increasing the level of instability.
Due to uncertainties and anxieties, many buyers might decide to skip this year’s iteration of the iPhone and wait for the 2022 version. Adding to the reservation by buyers is the fact that more significant updates are expected, compared to the iPhone 13, which was not an essential update to the iPhone 12.
Despite other products and segments enjoying growth, the iPhone is the mainstay of Apple’s business and usually shapes each financial quarter’s outcome. The phone is responsible for almost half of the $365.8 billion revenue that Apple made last year. As such, Apple takes upgrading the phone seriously.
Apple had been preparing for the slump in iPhone 13 demand by trying to entice iPhone 12 owners to upgrade. It teamed up with network operators to roll out tempting rebate offers, which in some cases, allowed iPhone 12 owners to pay little to get the iPhone 13.
At the last earnings call, Tim Cook, CEO of Apple, said that his company was experiencing healthy demand for its new products, including the iPhone and iPad, and even predicted a bumper holiday quarter. However, Cook also pointed out that Apple was facing supply challenges as it was struggling to get enough chips for production. He added the supply constraint could cost Apple more than $6 billion in revenue during the holiday sales.
As would be expected, any terrible news for Apple is awful news for its numerous vendors. For example, TSMC, which supplies the majority of Apple chips, experienced a 12 percent drop in revenue in October, compared to income in September.
Hon Hai Precision Industry Co who assembles most of Apple’s iPhones, also expects its business to reduce in the last quarter of 2021. It said the decline would be caused by dwindling demand for consumer electronic products and the global chip shortage, a double whammy that the company could do nothing about.
Apple is not the only company to be affected by the global chip shortage. Other phone makers are cutting their expectations as well. Manufacturers in other industries are also affected, as some car manufacturers have had to temporarily close their factories due to the inability to source chips. Other manufacturers decided to sacrifice some features to continue operation to the dismay of buyers.
Things are not being helped by the reality of the average shopper who has seen consumer prices rising at the fastest rate annually since the ’90s. With prices for essential items rising constantly, consumers have to prioritize their purchases, with electronic items losing out to food, gas, and housing expenses.