Supply chain crisis. Production of Apple’s flagship iPhones fell 20 percent from previous plans, in lead up to busy Christmas period
Apple’s hopes of a record breaking Christmas quarter with its latest iPhone handset have suffered a setback after multiple reports of the tech giant scaling back production.
That said, Apple should still enjoy a healthy Christmas trading period with its iPhone 13 range, despite all the supply chain issues and chip shortages it is contending with.
Last week Apple’s shares declined after Bloomberg, citing people familiar with the matter, reported that Apple had told its parts suppliers that demand for the iPhone 13 lineup had slowed.
This came after reports that Apple in October had scaled back iPhone 13 production by as much as 10 million units (down from a target of 90 million units), due to the ongoing global chip shortage.
Reflecting the chip shortages and supply chain challenges, last month Asia Nikkei reported that Apple had also drastically trimmed its iPad production, in order to feed chips to the iPhone 13, and ensure it could still make the flagship smartphones.
And now this week Asia Nikkei has reported that production of the flagship iPhone 13 smartphones fell 20 percent short of previous plans in September and October, according to sources familiar with the matter.
The three months of October, November and December are the busiest period for Apple, as consumers seek to purchase its products as gifts in the weeks leading up to Christmas.
According to Asia Nikkei, when most of China shuts down for the Golden Week holidays, the factories used by Apple usually go into overdrive and ramp up production to 24 hours a day, in order to cope with the Christmas demand.
But that has not happened this year.
Instead iPhone and iPad production was reportedly halted for several days and workers were given time off.
“Due to limited components and chips, it made no sense to work overtime on holidays and give extra pay for front-line workers,” a supply chain manager involved told Nikkei Asia. “That has never happened before. The Chinese golden holiday in the past was always the most hustling time when all of the assemblers were gearing up for production.”
After launching the iPhone 13 range and new iPads in September, Apple is falling millions of units short of its production goals and missing out on billions of dollars of revenue, the publication reported. In many countries, it is now too late for consumers to buy some Apple products in time to give as holiday gifts, it said.
Through September and October, the reallocation of the shared components squeezed iPad assembly even more, Asia Nikkei reported.
This has resulted in about 50 percent less production volume than planned, while the production forecast for older generations of iPhones also dropped around 25 percent.
To be fair, Apple has been warning of supply issues for quite a while now.
CEO Tim Cook in May this year had warned he expected global chip shortage to constrain supply of the new iPad Pro and iMac.
Then in July when Apple was reporting its excellent third quarter results thanks to heavy consumer spending on its products throughout the Coronavirus pandemic, Apple did give a heads up to a looming problem.
Tim Cook at the time warned silicon “supply constraints” would affect sales the iPhone as well as the iPad.
He added that the shortages were not in the high-powered processors that Apple has manufactured for its devices, but in what’s called “legacy nodes,” or chips that do everyday functions like driving displays or decoding audio, and can be manufactured using older equipment.
Then in October Cook told Reuters that the impact of supply chain challenges would be worse during the holiday sales quarter than it was in the previous quarter.
Apple is not alone in this regard.
The chip shortages, coupled with stressed global supply chains, has put immense pressure on multiple industries including car makers and tech giants.