Apple cuts iPhone shipments over reduced China demand

AppleInsider

Apple's iPhone shipments in 2024 will drop compared to 2023, analyst Ming-Chi Kuo forecasts, with a significant decline caused in part by lower shipments to China.

Apple's Head of Retail, Deirdre O'Brien, in Apple Sanlitun, Beijing

Apple is having trouble in China, with reports of local sellers overtaking the iPhone in the market. It now seems that the problems in China are going to affect Apple's overall shipments for the year.

In a Tuesday Medium post, TF Securities analyst Ming-Chi Kuo cites a supply chain survey that determined Apple lowered its orders for key semiconductor components to be used in the iPhone 15 and iPhone 16 generations.

The decline can be between 10% and 15% per half year of 2024, Kuo writes. Overall, this would amount to a total shipment count of 200 million units, which Kuo says would be down 15% year-on-year if proven true.

As to why the shipment count is dropping, Kuo proposes that it's due to a shift towards smartphones with generative AI elements and foldable designs in the high-end market. Kuo also blames the return of Huawei in the Chinese market.

While Samsung has allegedly revised its shipment forecast for iPhone 15 models in the first half of 2024, Samsung has instead increased its Galaxy S24 shipments by between 5% and 10%. This is apparently because of a higher-than-expected demand for the range and its generative AI functionality.

Apple's weekly shipments in China have also declined by 30% to 40% in the last few weeks. Kuo is expecting that trend to continue in the face of competition from Huawei and foldable options in China.

Kuo believes that Apple won't be introducing iPhone models that revamp the design and offer more of an AI-forward approach until 2025. Apple is also rumored to be bringing out the iPhone Fold in the same year.

During Apple's Q1 2024 financial results release and conference call, the company's top executives warned that the second quarter results could be tougher than initially expected.

Kuo's comments arrive at the same time as discussion from Wedbush analysts about the iPhone maker.

Wedbush told investors that it was maintaining its price target for Apple despite multiple problems, ranging from the iPhone in China to the cancellation of the Apple Car. It said that the pent-up demand for the iPhone 16 will help override any current concerns.

Rumor Score: Possible

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blastdoor

I keep seeing stories that China is experiencing deflation due to weak domestic demand. 

This creates opportunities and pitfalls for Apple. It means their cost of production in China may fall, leading to higher profits on products exported from China. The downside is that sales in China will fall and/or they will have to cut prices in China to hold market share. Another downside is that Apple might be tempted to slow down de-risking production away from China. 

I think that so long as Xi (or like minded people) are running China, de-risking is essential. Apple should take the extra profit from lower Chinese costs and invest it in the de-risking activities.

nubus

So, we shouldn't worry about iPhone 15 as there is a "pent-up demand for the iPhone 16".

Wedbush gave us the same story six months ago before iPhone 15.
According to Wedbush the iPhone 15 would be a major hit due to an "installed base pent-up upgrade cycle,".
https://appleinsider.com/articles/23/09/07/inevitable-iphone-15-price-increase-wont-deter-pent-up-demand

Update... this was reported by @twolf2919 in https://appleinsider.com/articles/24/03/05/wedbush-ai-pent-up-iphone-16-demand-outweigh-concerns-over-china-sales

tmay

nubus said:

So, we shouldn't worry about iPhone 15 as there is a "pent-up demand for the iPhone 16".

Wedbush gave us the same story six months ago before iPhone 15.
According to Wedbush the iPhone 15 would be a major hit due to an "installed base pent-up upgrade cycle,".
https://appleinsider.com/articles/23/09/07/inevitable-iphone-15-price-increase-wont-deter-pent-up-demand

Update... this was reported by @twolf2919 in https://appleinsider.com/articles/24/03/05/wedbush-ai-pent-up-iphone-16-demand-outweigh-concerns-over-china-sales

I don't think that Apple is going to do any worse elsewhere than its competitors, but it's looking like pretty much everywhere excepting N. America is now in, or is on the cusp of, recession.

9secondkox2

LOL. Second guy from the right in the photo. Cue seame street music - “which one of these kids is doing their own thing”

total crackup. 

Also, it’s the same story every year. Around now, the latest iPhone has sold the bulk of what it will sell and we see diminishing returns until September when the cycle begins anew. 

nubus

tmay said:

I don't think that Apple is going to do any worse elsewhere than its competitors, but it's looking like pretty much everywhere excepting N. America is now in, or is on the cusp of, recession.

The combination of high interest rates and inflation has for last few years reduced free purchasing power outside US. People need homes and food. iPhones are nice, but you might want to keep your old model or - as it seems in China - switch to something more affordable. The Chinese have decided that the current iPhone 15 doesn't deliver enough value (I agree). On top of this we see tax increases due to wars and conflicts. This won't affect AVP. It is those that can barely afford an iPhone that are affected.

tmay

nubus said:

tmay said:

I don't think that Apple is going to do any worse elsewhere than its competitors, but it's looking like pretty much everywhere excepting N. America is now in, or is on the cusp of, recession.

The combination of high interest rates and inflation has for last few years reduced free purchasing power outside US. People need homes and food. iPhones are nice, but you might want to keep your old model or - as it seems in China - switch to something more affordable. The Chinese have decided that the current iPhone 15 doesn't deliver enough value (I agree). On top of this we see tax increases due to wars and conflicts. This won't affect AVP. It is those that can barely afford an iPhone that are affected.

There is also mandates, and encouragement, in China by the PRC to abandon Western devices especially for the national champion Huawei. Given that Huawei is having to manufacturer trailing edge SOC's at 7nm using techniques that are expensive and reduce throughput, it makes sense to the PRC to do this. That doesn't mean that Chinese consumers will stop buying iPhones entirely, just that there will be a reduction in the market.

Either way, I can't wait for Apple to shift the bulk of its production to countries other than China. 

avon b7

tmay said:

nubus said:

tmay said:

I don't think that Apple is going to do any worse elsewhere than its competitors, but it's looking like pretty much everywhere excepting N. America is now in, or is on the cusp of, recession.

The combination of high interest rates and inflation has for last few years reduced free purchasing power outside US. People need homes and food. iPhones are nice, but you might want to keep your old model or - as it seems in China - switch to something more affordable. The Chinese have decided that the current iPhone 15 doesn't deliver enough value (I agree). On top of this we see tax increases due to wars and conflicts. This won't affect AVP. It is those that can barely afford an iPhone that are affected.

There is also mandates, and encouragement, in China by the PRC to abandon Western devices especially for the national champion Huawei. Given that Huawei is having to manufacturer trailing edge SOC's at 7nm using techniques that are expensive and reduce throughput, it makes sense to the PRC to do this. That doesn't mean that Chinese consumers will stop buying iPhones entirely, just that there will be a reduction in the market.

Either way, I can't wait for Apple to shift the bulk of its production to countries other than China. 

This is confirmation that the node the SoC is manufactured on (note:not the SoC itself) does not mean much when it comes to sales.

Mandates and encouragement? Would you prefer Apple received an outright ban on sales in China (like Huawei has in the US)? 

No. What Apple has to do is discount (that's been happening for a very long time in China) and improve what the iPhone offers. 

On manufacturing outside China, did you mean that literally or is it OK for Apple to use Chinese companies for manufacturing outside China? 

As for 'trailing edge' what is the most cutting edge option open to the United States on US soil? 

tmay

avon b7 said:

tmay said:

nubus said:

tmay said:

I don't think that Apple is going to do any worse elsewhere than its competitors, but it's looking like pretty much everywhere excepting N. America is now in, or is on the cusp of, recession.

The combination of high interest rates and inflation has for last few years reduced free purchasing power outside US. People need homes and food. iPhones are nice, but you might want to keep your old model or - as it seems in China - switch to something more affordable. The Chinese have decided that the current iPhone 15 doesn't deliver enough value (I agree). On top of this we see tax increases due to wars and conflicts. This won't affect AVP. It is those that can barely afford an iPhone that are affected.

There is also mandates, and encouragement, in China by the PRC to abandon Western devices especially for the national champion Huawei. Given that Huawei is having to manufacturer trailing edge SOC's at 7nm using techniques that are expensive and reduce throughput, it makes sense to the PRC to do this. That doesn't mean that Chinese consumers will stop buying iPhones entirely, just that there will be a reduction in the market.

Either way, I can't wait for Apple to shift the bulk of its production to countries other than China. 

This is confirmation that the node the SoC is manufactured on (note:not the SoC itself) does not mean much when it comes to sales.

Mandates and encouragement? Would you prefer Apple received an outright ban on sales in China (like Huawei has in the US)? 

No. What Apple has to do is discount (that's been happening for a very long time in China) and improve what the iPhone offers. 

On manufacturing outside China, did you mean that literally or is it OK for Apple to use Chinese companies for manufacturing outside China? 

As for 'trailing edge' what is the most cutting edge option open to the United States on US soil? 

Evidently, the SOC in the Mate 60 is manufactured on DUV equipment by multi-stepping, which takes more time at higher cost. That Huawei has AI processors and consumer SOC's manufactured on the same node, limited production capacity constrains production for both. Interestingly enough, I don't worry about leading or trailing edge semiconductor manufacturing in the U.S. since obviously, the U.S. via Intel is on the cusp of leading edge, and enough "trailing" edge fabs being constructed including by TSMC. It is also the case that our allies are the source for leading edge semiconductor manufacturing that we have readily available supply from.

Apple's A series roadmap, indeed Qualcomm's as well, certainly looks stronger than Huawei's, but given the market in China, the moribund economy, and internal politics, Huawei is certainly in the right place at the right time with its "trailing" SOC's. Whether that advantage lasts is the question. If the Chinese consumer want to buy Huawei, especially with discounts, then I say, buy all you want.

As for an outright ban on Apple iPhone and other Apple devices, that would almost certainly doom any additional foreign investment in China, investment that is already collapsing, and reason enough for Apple to accelerate withdrawal of manufacturing out of China into countries friendlier to the U.S. Apple completely leaving China would be a substantial risk to Chinese workers, and sure, a substantial chunk of Apple's market would evaporate.

I would state that were China to invade Taiwan today, the risk to Apple, et al, would be massive, but given a few more years, and buildout of new fabs in the West, it would be manageable. Of course, whether China would survive as an exporter of much of anything would be in question, as well would be its import of critical raw materials and foodstuffs. No one would really know the outcome of the war, but it would like doom the global economy.

China is already shipping into the U.S. market via Mexican companies, but I doubt that will continue unchallenged, and surely not for EV manufacturers attempting to enter the U.S. market without indigenous manufacturing built in Mexico.

https://www.businessinsider.com/china-squeezing-us-firms-apple-tesla-hard-painful-business-lesson-2024-3