Apple (APPL:NASDAQ) freezes production plans for iPhone due as demands grow soft

Apple Inc. (APPL:NASDAQ) is backing off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, according to people familiar with the matter. Shares of Apple closed 0.66% after starting Tuesday’s trading session up 2.6% before giving back some of those gains later in the morning.

Reports surfaced Monday evening that Foxconn Technology Group (Hon Hai Precision Industry Co.), apple’s biggest iPhone assembler, was shifting production to Pro models instead of the lower-priced standard iPhone 14. On Tuesday, Bloomberg reported that the Cupertino, California-based electronics maker has told suppliers to pull back from efforts to increase assembly of the iPhone 14 product family by as many as 6 million units in the second half of this year.

Apple had earlier upgraded its sales projections in the weeks leading up to the iPhone 14 release and some of its suppliers had started making preparations for a 7% boost in orders. Instead, the company will now aim to produce 90 million handsets for the period, roughly the same level as the prior year and in line with Apple’s original forecast this summer.

The news reverberated across shares of Apple suppliers, sending their prices lower. In Taipei, key chipmaker Taiwan Semiconductor Manufacturing Co. fell 2.2%, while Hon Hai Precision Industry Co. (Foxconn) was down 2.9%, amid a wide selloff of electronics suppliers.

In Amsterdam, Dutch-Swiss chipmaker STMicro led the decliners, falling more than 5% in early European trading. Apple accounted for around 20% of the company’s total revenue in 2021. ASML Holding NV, maker of advanced chipmaking gear, dropped as much as 3.2% in Amsterdam.

Demand for higher-priced iPhone 14 Pro models still remains stronger than for the entry-level versions, according to some of the people. In at least one case, an Apple supplier is shifting production capacity from lower-priced iPhones to premium models, they added.

Apple had this week said it would start manufacturing the iPhone 14, launched earlier this month, in India, as the tech giant moves some of its production away from China, the world’s biggest smartphone market.

China is currently in an economic slump that’s hit its domestic mobile device makers and also affected the iPhone’s sales. Purchases of the iPhone 14 series over its first three days of availability in China were 11% down on its predecessor the previous year, according to a Jefferies note on Monday.

Lacklustre interest in new Apple products is just the latest sign of waning global demand as central banks hike interest rates in their quest to cool inflation. Worries over higher interest rates and the economy have sent Apple shares down 14% year to date.

The latest Fed hike has also accelerated the flight to bonds, as investors continue to priorities safety over risk. The U.S. borrowing benchmark, the 10-year treasury note hit the 4% milestone for the first time in over a decade and has climbed at its fastest pace in four decades–lifted by increasing expectations for how high the Fed will lift interest rates.

Consumer spending is weakening, as people are shifting buying priorities away from discretionary items like iPhones to staples. Global demand for personal electronics has also been suppressed by surging inflation, recession fears and disruption from the war in Ukraine. The smartphone market is expected to shrink by 6.5% this year to 1.27 billion units, according to data from market tracker IDC.

Though the supply constraints pulling down on the market since last year have eased and the industry has shifted to a demand-constrained market. High inventory in channels and low demand with no signs of immediate recovery has sent Original Equipment manufacturers (OEMs) panicking and cutting their orders drastically for 2022.

The iPhone maker declined to provide detailed September quarter revenue guidance following its better-than-expected third quarter earnings in late July, but said overall revenue growth would likely outpace gains over the three months ending in June.

Overall, Apple earned more than $19.44 billion for its fiscal third quarter, as revenues rose 2% from last year to $82.96 billion, just ahead of analysts’ estimates of $82.88 billion.