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Apple suppliers see demand for new iPhones stabilising this year

Volumes planned for next launch cycle signals steady demand despite US-China trade tensions, market decline

Taipei

APPLE Inc's suppliers are preparing to produce components for up to 75 million new iPhones in 2019's second half, roughly the same number as a year earlier, according to people familiar with the matter.

The volumes planned for the next iPhone launch cycle would signal steady demand for the company's most important product, despite US-China trade tensions and a decline in the overall smartphone market.

The Cupertino, California-based technology giant stopped divulging iPhone shipment numbers in the holiday quarter last year as unit growth turned negative and started providing metrics to highlight the growth of services such as Apple Music. Analysts estimated that Apple sold 70-80 million new iPhones in the second half of last year.

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The company's Asian suppliers are gearing up to produce components for three new iPhone models to meet holiday-season demand, the sources said, asking not to be identified citing internal estimates.

The US company's Asian partners could ramp production up to 80 million new phones if needed, one of the sources said.

Main iPhone assembler Foxconn Technology Group has stepped up hiring in Shenzhen and is offering staff about 10 per cent more than a year ago to secure a peak-period workforce, another person familiar with the matter said.

The iPhone assembler Pegatron Corp added to gains and closed 2.3 per cent higher, while lens maker Largan Precision Co rose 2.6 per cent. Taiwan Semiconductor Manufacturing Co pared earlier losses and closed unchanged.

Apple has announced new iPhones each September since 2012, and the new models typically go on sale in the final weeks of that month. The company reports third-quarter earnings on July 30, and the firm's guidance could indicate its expectations for iPhone sales at the end of the fourth quarter ending in September.

Apple still provides iPhone revenue figures, with the company generating US$52 billion from iPhones last holiday quarter, a 15 per cent decline, and US$37 billion from new iPhones in the last fourth quarter, a 27 per cent increase. Those numbers, however, include a mix of both last year's new models and earlier versions of the iPhone.

Jeff Pu at GF Securities estimated that shipments of newly released iPhones will rise to 74 million in the second half, up about 7 per cent from his estimate of 69 million last year, while TF International analyst Ming-Chi Kuo forecast that Apple would sell 75- 80 million new iPhones in the second half of 2018.

This year's volumes may signal stabilisation after a year of uncertainty, though that is a far cry from the double-digit growth numbers of years past.

Of course, the fact that Apple suppliers plan to produce parts for 75 million new iPhones does not necessarily mean that the company will sell that many. Apple will assess sales after launch, and the total shipments may not reach that mark. The company declined to comment.

Apple is struggling with soft smartphone demand as people take longer to replace their gadgets and Chinese rivals such as Huawei Technologies Co grab market share. The trade war is also denting Chinese economic growth while souring consumers there on American brands. Analysts have been betting on a 13.3 per cent drop in iPhone shipments to roughly 189 million in fiscal 2019, according to average projections compiled by Bloomberg.

"Apple's growth has become more cyclical and slowed along with the global smartphone market, leaving it dependent on iPhone upgrades to drive sales," Bloomberg Intelligence analysts John Butler and Boyoung Kim said. "Apple's inability to raise iPhone prices much higher is constraining growth. Weakness in China due to competition and the trade war with the US remains an issue."

While Apple is relying on services to take up the slack, sales of the gadget remain its largest revenue driver and the US company needs to get the latest devices into the hands of its users so that they can actually download and subscribe to new services such as the upcoming Apple Card, Apple Arcade gaming service, and Apple TV+, a Netflix rival.

The major attraction in this year's models lies in enhanced cameras: the two high-end models to replace the iPhone XS and iPhone XS Max will include three back cameras, up from two, and a successor to the iPhone XR will include a second back camera. The third camera will serve as an additional ultra-wide lens, Bloomberg News reported in January, allowing the phone to automatically repair parts of an image that may be initially chopped out of a frame. It will also enable a wider range of zoom. All three new models will also include faster A13 processors built by TSMC, Bloomberg News reported in May.

Morgan Stanley boosted its target price on the stock this week, days after another firm upgraded the shares. Apple may benefit from a US ban on the sale of American technology to Huawei, not to mention Japanese exports curbs to South Korea that threaten Samsung Electronics Co. Apple's main chipmaking partner, TSMC, also helped allay fears of a protracted industry slump when it projected current-quarter revenue ahead of estimates. Longer term, investors hope that Apple can rejuvenate its most iconic gadget.  BLOOMBERG