Apple shares dropped more than 1% in premarket trading after it is reported to cut iPhone, AirPods output amid Ukraine war uncertainty.
Apple plans to make about 20% fewer iPhone SEs next quarter than originally planned, in one of the first signs that the Ukraine war and looming inflation have started to dent consumer electronics demand, sources briefed on the matter told Nikkei Asia.
Apple launched the iPhone SE as its first 5G-capable budget phone less than three weeks ago but is now telling multiple suppliers that it aims to lower production orders by about 2 million to 3 million units for the quarter, citing weaker-than-expected demand, four people told Nikkei Asia. The U.S. tech giant also reduced orders for its AirPods earphones by more than 10 million units for all of 2022, as the company predicted lukewarm demand and wanted to reduce the level of inventories.
The company shipped about 76.8 million units of AirPods in 2021, Counterpoint Research data showed, but people with knowledge of the situation said overall shipments for 2022 could likely see a decline.
Apple also asked suppliers to make a couple of million fewer units of the entire iPhone 13 range than previously planned, but said this adjustment was based on seasonal demand.
These moves by the world's most powerful chip and component procurer underline the mounting pressure on the tech industry following the onset of the Russia-Ukraine war, which has compounded the yearslong chip shortage that has hit a string of industries from smartphones to PCs to automobiles.
Numerous governments, from the U.S. and the EU to Japan, South Korea and Taiwan, have imposed economic sanctions against Russia over its invasion of Ukraine, and the supply chain has been rocked by turmoil in the oil, energy and raw materials markets. The looming inflation risks further adding to people's living costs and creates concerns over demand for consumer electronics products.
Apple halted its production sales in Russia soon after the unexpected outbreak of the Ukraine war. The Cupertino, California-based tech giant is the No. 3 smartphone maker in Russia, where sales of around 5 million iPhones gave it a 16% market share last year, data from IDC showed. It is the No. 5 PC maker in the Russian market.
It is not surprising that the company has turned conservative for the June quarter, an executive at an Apple supplier told Nikkei Asia. "The war has affected spending at the European markets. ... It is understandable [consumers will] save the money for food and for heating."
The move by Apple, the leader in the consumer electronics industry, to lower its production volume for the newly introduced iPhone could spark chain effects on other consumer electronics makers to trim production orders and digest their inventories amid the uncertain market.
Multiple global institutions have lowered their forecasts of worldwide economic growth for this year. The International Monetary Fund is to trim its global economic growth forecast for 2022 in April due to the Ukraine turmoil and declining risks in a number of countries. The IMF last estimated 4.4% global economic growth this year. China, the world's second-largest economy, also set a growth target of 5.5% this year, the mildest over the past 30 years.
Brady Wang, a tech analyst with Counterpoint Research, said the overall smartphone market has seen unreasonably high levels of inventory and will eventually undergo a correction.
"We see the end demand for smartphones in China is quite weak. ... In addition, the Russia-Ukraine war will likely have spillover effects to the whole European market and on consumer demand," Wang told Nikkei Asia. Counterpoint has revised down its view for the smartphone market for 2022 to some 5% of growth, saying the ongoing Ukraine war could bring uncertainties.
Apple declined to comment for this story.