Apple’s About-Face on iPhone 14 Production Leaves Suppliers On the Hook | Mobile News

Apple’s About-Face on iPhone 14 Production Leaves Suppliers On the Hook

Component makers can be caught off-guard when big customers flip their guidance at short notice.

By:BLOOMBERG
| Updated on: Sep 28 2022, 23:26 IST
Apple
Apple Inc. is pulling back from plans to increase production of its new iPhones this year (AFP)

Apple Inc. is pulling back from plans to increase production of iPhone 14 series this year. Instead, it will produce about as many as the prior year, in line with its original forecast. Fair enough — a looming global recession and strong dollar probably mean consumers outside the US will feel the pinch if and when they set out to buy a new phone.

Apple had raised its sales projections in the weeks leading up to the iPhone 14's release, before reverting to its earlier forecast. So in theory, the retreat didn't massively move the needle for its own products. But the trickle-down effect is harder to manage. What happens to the supply chain and the hundreds of manufacturers depending on Apple for guidance? The latest news hit them hard, sending the shares of chipmakers and phone assemblers tumbling.

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Demand for memory chips, a key component in smartphones and other electronics, was already showing signs of weakening months ago — receding from the pandemic boom when everyone was sitting at home glued to their devices. In December last year, analysts at Jefferies Financial Group Inc. noted that the second-half outlook was “less certain” than the first due to weak demand for phones, TVs and consumer PCs.

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Yet suppliers can still be caught off-guard when big customers alter their guidance, especially at short notice. It was only recently that some of Apple's suppliers had started making preparations for an expected 7% boost in orders.

Further down the chain, makers of the semiconductor production equipment used to make the chips — themselves victims of a bottleneck that squeezed output over the past two years — had been anticipating a pickup. Manufacturers in this $60 billion-plus industry were, as recently as July, expecting strong demand for memory and storage, with the market set to expand. Expenditures and investment weren't projected to go down until next year, according to the North American industry association. But then some of them began revising their budgets as they were asked to cancel deliveries by customers.

How is it that these industries — so deeply dependent on each other — aren't quite on the same page?

No wonder that we've ended up with severe supply-chain snarls. It's delays like these — caused by failure to sync with the market and suppliers — that lead to intractable production issues and leave small manufacturers on the hook. While firms across the board try to gauge the correct levels of inventory and manage their product cycles, they end up either over- or under-ordering. Parts makers usually don't have long to adjust their operations.

The champion of supply-chain management, Toyota Motor Corp., recently started giving its massive network of component makers more time — to take the pressure off them, their profits and margins. That especially helps the hundreds of smaller firms — typically manufacturing just one or two components — that take the bulk of the cost pressures. Customers' moving targets can tip them into trouble very quickly.

Without such guidance, suppliers are left holding the bag. It's easy to say, you can't blame Apple — on a net basis, they didn't really change their production. But as supply-chain issues persist and firms struggle to align their operations while rapid technology shifts pull them in different directions, it's time the big companies started paying more attention. It isn't that hard to keep everyone in the loop.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

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First Published Date: 28 Sep, 23:26 IST
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