Apple to cut production iPhone by 10 percent because of sluggish demand: report

Apple is cutting down on the number of iPhone 7 and iPhone 7 Plus models according to a report in Nikkei Asian Review. The report is based on data supplied by component manufacturers. An accumulated inventory of unsold phones is the reason for the cut in production of new phones. A major component manufacturer has said that the cuts are within anticipated limits, and it has reduced the dependence on Apple in its overall business.

Apple had cut production of 6 and 6S a year ago, in January 2016. The production was cut by 30 percent, again following accumulation of unsold stock. The move is expected to affect LCD panel makers, assemblers, chipmakers and other component suppliers. The reduced production was continued over the subsequent quarter as well, as the demand for iPhone smartphones did not improve.

Image Credit: Reuters

The iPhone 6 and iPhone 6 Plus also saw a cut in production. Image Credit: Reuters

While the demand for iPhone 7 models has been sluggish, Apple had not anticipated the demand for the iPhone 7 Plus model, which exceeded expectations. The fine tuned production requirements of the iPhone, and the exacting tolerances mean that Apple cannot find new suppliers and shoot off models from the assembly line. A shortage of camera sensors is why Apple cannot meed the demand for the iPhone 7 Plus model.

Apple also did not anticipate the influx of Samsung customers because of the Samsung Galaxy Note 7 fiasco. Apple boosted production of the iPhone 7 by 10 percent instead of the iPhone 7 Plus, as a response to the worldwide recall of Samsung Galaxy Note 7 smartphones, following a number of batteries exploding.

The burnt Samsung Galaxy Note 7 in an aircraft

The burnt Samsung Galaxy Note 7 in an aircraft

The iPhone 7 model is popular in Japan, particularly because of the convenience of Apple Pay, and implementation of the contactless IC chip. However, Japan makes up only 10 percent of the international market for Apple, and the strong demand for the iPhone 7 in Japan is not enough to offset the sluggish sales all over the world.

Customer surveys have showed that only 50 percent of existing Apple users intend to upgrade to the latest model. Customers are of the opinion their current smartphones are powerful enough. There is intense competition and now there are attractive offerings at lower prices, which means a portion of Apple users are upgrading to devices from other manufacturers.

Apple has so far had a tic-tock cycle. Users could either upgrade every year, or sit out a year. For those sitting out a year, the S versions are more attractive every year. These buying habits might go for a toss if Apple starts offering a significant upgrade only once every three years. Signals from suppliers indicate that Apple might indeed be extending its production cycle to three years as against the current two years.

Published Date: Jan 02, 2017 11:45 am | Updated Date: Jan 02, 2017 11:45 am