According to sources close to Trendinsider, Apple may be well on its way to lowering the number of orders for components such as camera lenses, display panels, polymer lithium batteries, and backlight modules. The order numbers will reportedly be adjusted from 50 million units in 4Q12 down to approximately 25 million units in 1Q13, which would represent a 50% decrease overall. Contrary to the popular notion that the Cupertino giant is simply clearing way for new products, it is insinuated that the decreased purchases actually serve an alternate, slightly less glamorous purpose: to prevent its current inventory from reaching excessive levels.
Assessing the situation from both the business and consumer angles, the Cupertino giant’s actions are certain to generate a number of major repercussions. Suppliers of individual components –including those belonging to the “former-Apple” and “non-Apple camps”– will begin seeing changes to their client orders, supply routines, and order allocations. For the non-Apple camp, if the Cupertino company does in fact end up releasing only 25 million iPhone 5 units during the first quarter of 2013, then a number of “challenge” opportunities will unquestionably be present.
Below, we take a look at some of the key factors that may have led to Apple’s current “purchase-order-decrease” situation:
iPhone 5 Performs Below Company and Market Expectations
By the time the iPhone 5 landed on the market, Apple has already been well aware of the hype surrounding large-sized smartphones. This notably prompted the company to not just ramp up its marketing efforts, but to also find numerous ploys to prevent other brands from claiming its spotlight. As shown by the actual sales numbers, the continually dipping supply orders, and the declining component purchases, however, it is fair to say that in the recent months, things haven’t exactly gone Apple’s way.
Walmart’s recent iPhone 5 promotion, which involves using attractive prices and non-contract plans like Straight Talk, is another subtle indication of the Cupertino company’s struggles. Although the strategy will undeniably give boost to the current handset’s retail performance, the fact that Apple had to resort to such a tactic meant that consumer and retail reception probably hadn’t been particularly high to begin with.
It was likely during December 2012 that Apple first decided to decrease its purchase orders. Given that the replenishment of some of the components took place ahead of time, and that the peak shipment period had already taken place during 4Q12, there will unlikely to be any noticeable growth for Apple during 1Q13.
Supplies Intended for 1Q13 Pushed to 4Q12
Remarkably, from what Trendinsider’s observations and data show, the distance between the iPhone 5’s release dates in the US and Chinese regions have been the closest that they’ve ever been in the past. By custom, Apple generally likes to release its products in mature markets one quarter before launching them in emerging regions. Such a strategy was pragmatic in that it made it possible for market momentum to move from one quarter to the next, in turn allowing Apple’s products to retain whatever dominance it had for at least a couple of seasons.
By introducing the iPhone 5 in China during 4Q12 (which, by Apple’s standards, is technically a “quarter” ahead of time), it can be argued that whatever strong momentum Apple is currently hoping for will have already been partially diminished. With the market performance for 1Q13 already anticipated to be less impressive than the previous quarter, Apple’s choosing to decrease component orders, in all, is not really all that unusual.
Pervasive New iPhone Rumors
In addition to the fact that user ratings for the iPhone 5 has not been as high as it had been for 4S, the swirling rumors of a low-cost, multi-color iPhone model, no doubt, have played a major role in weakening the confidence of the iPhone 5’s possible consumers.
As Trendinsider’s sources have recently suggested, Apple’s new handset probably won’t launch as quickly as expected. The test orders received by various supply manufacturers at the moment suggest that the final specs for Apple’s smartphone have yet to be determined, and that the company is still trying to figure out how to create the most ideal component mix for the new handset.
According to what the other news sources are currently pointing out, the rate at which the iPhone 5’s component costs are decreasing is also far from that of the previous iPhones. Ultimately, what this means is that in the short term, the iPhone 5’s eventual price decrease will not be as major nor happen as soon as many observers have hoped. Even in the future, some cost-control difficulties is likely to be involved for the Cupertino company, whether it wants to go for a lower or higher end version of the iPhone 5S.
For now, despite the timing of the “new” iPhone being unclear, one thing that appears certain is that Apple is indeed working on shortening the production cycles, and that it may in fact come up with a much “larger” iPhone in the future. These are a means to not only appeal to various consumer expectations, but to also respond quicker to the trends set by its surrounding competition.
Apple’s Aura of Invincibility Gone?
Apple’s iPhones currently account for 20 to 25% of the entire smartphone market. Although such proportion is incomparable to that of the individual markets, the Cupertino company’s gains, on the whole, is still significantly higher than that of other smartphone makers (Phil Schiller, Apple SVP of Worldwide Marketing, recently claimed that the company “owns” approximately 75% of the market’s profit). However, with the iPhone 5’s retail situation and the orders issue taken into account, and with the plethora of new smartphones currently entering the market, the visibility of Apple’s smartphones will undoubtedly take a hit, even if the manufacturing issues do begin to take a turn for the better.
What Apple needs to do, needless to say, is to make appropriate changes as soon as possible. With a reform-oriented leader, Apple is flexible enough to be able to alter its strategy, production routines and marketing mentality, and will certainly find a way to create products that appeal to different tastes without compromising its core principles. These changes will satisfy users who in the past are not necessarily into Apple’s products, making it possible for the company to expand its reach to different market groups, and to snap its previous habit of releasing one product a year.
Perhaps we will witness many changes soon: In 3Q13, it may be that we will see two possible releases, an iOS7 powered, high-end iPhone 6, along with a mid-end iPhone 5S.