Sourcetoday 1841 Iphone X Family Line Up
Sourcetoday 1841 Iphone X Family Line Up
Sourcetoday 1841 Iphone X Family Line Up
Sourcetoday 1841 Iphone X Family Line Up
Sourcetoday 1841 Iphone X Family Line Up

iPhone X Production Cut Hits Apple Suppliers

March 3, 2018
Supplier revenues face a potential $35 billion hit in 2018.

Apple Suppliers Catch the Flu

The latest news out of Apple, combined with the current flu epidemic, brings to mind a common saying that can be adapted for this situation: “When Apple sneezes, its suppliers get the flu.” As the world’s largest purchaser of electronics components, including semiconductors, Apple influences the fortunes of its suppliers to significant degree. The company’s recent announcement that it would cut production plans for the iPhone X by 50% to 20 million units in Q1 2018 has sent its partners in the electronics supply chain scrambling to manage the damage.

In a teardown analysis performed by IHS Markit when Apple delivered the first iPhone X shipments, it was estimated that the total Bill-of-Materials (BOM) for the phone was $370.25. Making simplified assumptions that the costs remained the same in Q1 2018 yields an estimate that Apple suppliers will see revenues fall by $7.4 billion in the quarter.

However, due to various supply chain issues such as rebalancing inventories and run rates, many analysts estimate that suppliers would see their shipments fall by 60%. This would yield a total of $8.9 billion in lost revenue for the quarter. Assuming shipments do not recover in the coming year and that production is constant (in fact, production normally ramps later in the year), a simple extrapolation for the full year reveals a staggering drop of over $35 billion compared to original cumulative plans for Apple’s suppliers.

To bring some balance to this picture, most of Apple’s suppliers still have significant revenue opportunities from supporting other Apple products, including the iPhone 8. In addition, with smartphone production passing 1.5 billion units on an annual basis, there are opportunities to recapture revenue by supporting other smartphone manufacturers who could capture market share from Apple—that is, if the decline in demand reported by Apple is limited to Apple and does not represent an overall market slowdown.

On a Scale of 1 to 10, Who Feels the Most Pain?

Of course, the pain of this lost production is not felt equally across all Apple suppliers. The display/touchscreen module supplied by Samsung Electronics accounts for $110 of the BOM, or nearly 30% of the cost. This means Samsung is potentially exposed to annual lost revenues of $10.5 billion related to the iPhone X cut in production.

The largest share of iPhone X BOM costs comes from the semiconductor components, $146.25, according to IHS Markit. The potential annual revenue lost by suppliers related to reduced shipments of semiconductors is $11.7 billion. However, the blow from this loss is softened by being spread across the 19 suppliers listed in the table. This table does not break out the relative impact to each supplier. However, some suppliers will feel the impact more than others due to their relative position in the iPhone X.

While the battery pack only represents $6 in BOM cost, the burden of the cut in production for this element is shouldered by Sunwoda Electronics.

It is difficult to identify the impact from Apple’s iPhone X production cut announcement on the stock price of these companies. This announcement was made at the same time the overall stock market began its precipitous dive at the end of January.  

Supply Chain Lessons

When supply chain disruptions are discussed, attention is typically focused on disasters of various types, labor issues, trade barriers, etc. However, the most direct impact on the supply chain typically comes from the simple issue of demand in the end market. When there is a significant gap between demand expectations and reality, the impact is felt across the supply chain. And when the relative volumes are large, as in the case of the iPhone X, the impact is magnified.

In the end, risk management is central to the work of participants up and down the supply chain. This means that plans need to be made to manage impacts large and small from missed forecasts on both the upside and the downside.

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About the Author

Dale Ford

Dale Ford is a highly respected industry analyst with extensive experience producing award-winning market research. He brings expertise in technology trends, competitive analysis, forecasting ,and supply/demand research of the electronics, semiconductor and electronics components industries. His focused research delivers enhanced visibility on the products, technologies, and players shaping the electronics value chain.