Slowing Demand Of iPhone Deliver Big Hit To Two Major Apple Suppliers

Apple Inc had already warned its investors about the slowing down of demand for its iPhones while some of the companies in its iPhone supply chain also reported bad sale and reduced demands of iPhone parts.

In the latest reports filed by two of the largest companies in the supply chain of Apple’s iPhones – Foxconn and Japan Display, disappointing financial results were reported by them this week. These reports send shockwaves through the entire supply chain and its slowing demand for iPhones.

There was a 17.7 per cent drop in the sale of Foxconn for the first quarter of 2019 at $637.26 million.

On the other hand, a 17.2 per cent drop year on year was reported in the sale of mobile display units by Japan Display on Wednesday. This business unit comprises of 73.3 per cent of the total sale revenues of the company.  The rising tendency of consumers to shift to OLED screens in flagship phones in place of using the traditional LCD screens was blamed for the drop in sale and revenues by Japan Display. The company also identified the “slowdown of China’s and the global smartphone market” and the “prolonged life cycle of smartphones” for the drop in revenues and sale.

The result has also prompted Japan Display to seek the early retirement of 1,000 of its employees by the end of the second quarter.

According to analysts, the increasing price of phones is the case of the global slowdown in demand for smartphones – including iPhones. There is a rising tendency of consumers to hold on to their smartphones and not upgrading to the next model because the average cost for premium phones now is more than $1,000. The current owners of iPhones are now not upgrading to the latest or the next version for three or four years, said Bernstein’s Toni Sacconaghi said in February. There was a 4.1 per cent drop in shipments of smartphones in 2018 which was the “worst year ever” for smartphone sales according to research firm IDC in February.

And it is likely that in the future, there would not be any significant drop in price of Apple iPhones, say analysts. Because of the latest increase in import tariffs by the US on Chinese goods, it would by necessary for Apple to increase the cost of iPhones by 14 per cent to cover the costs of increased tariffs because most of the iPhones are mane in China, unless it decides to take the hit itself, said J.P. Morgan earlier this week.

In a change of business strategy and focus, Apple has  put a bigger focus on its services business so that it is able to offset the slowing sales of its hardware. Those services include an Apple TV+ library of original content that will roll out this fall, its new premium Apple News+ subscription offering, and a new Apple TV Channels platform which was launched this week which would provide it a larger cut of subscription revenues from services like HBO and Showtime.

(Adapted from CNBC.com)

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