Stock Futures Fall After Apple Drops Plans To Boost iPhone Production Due To Lack Of Demand

A man holds an iPhone 14 as Apple's new models go on sale at an Apple store in Beijing on Sept. 16, 2022. Thomas Peter/Reuters

Apple shares fell on Sept. 28, after the company dropped its plans to increase production of its new iPhone 14 this year due to suddenly reduced demand.

According to an article in Bloomberg the day before, Apple executives admitted that the electronics giant had overestimated consumer demand for its new iPhone 14 model this holiday season.

Apple shares initially fell on the news, but it partially recovered by the end of trading, only falling 1.92 percent to $149.84.

Total share loss this year is at 18 percent, compared with a 23 percent drop in the S&P 500 Index.

Apple had recently unveiled the new iPhone 14 and its accessories at a Sept. 7 launch event to much hype.

The new model features an improved camera, emergency satellite services, and a longer-lasting battery, but without a price hike.

The phone manufacturer had optimistically boosted its sales projections in the weeks before the September release, telling some of its suppliers to ramp up their rate of production by 7 percent.

July saw a jump in iPhone sales at the end of its June fiscal third quarter, which exceeded expectations, leading the company to expect increased sales of the new phone.

However, within two weeks of the initial release, the smartphone maker suddenly realized that their initial sales estimates failed to materialize this month.

The California-based company immediately told its suppliers to reduce the production of its iPhone 14 series of products, by as much as 6 million units in the second half of 2022, according to Bloomberg.

Apple decided to focus on producing 90 million more handsets instead, the same amount as last year and in line with Apple’s earlier summer projections for the fourth quarter.

However, demand for the costlier iPhone 14 Pro was still higher than for the less expensive basic versions of the model, according to Bloomberg,

Bloomberg also reported that at least one iPhone supplier is planning to shift more of its production capacity to the premium models.

Smartphone Demand Slackens Worldwide

The consumer market for high-priced electronics, like smartphones, has slackened due to rising global inflation, recession scares, supply disruptions due to the war in Ukraine, and the pandemic.

The smartphone market is expected to tumble by 6.5 percent to 1.27 billion sales in the fourth quarter, according to data from IDC, a marketing intelligence firm.

“iPhone 14 sales may be one of the best indicators of consumer sentiment globally, and it’s not a great sign,” said Ron Palmeri, an investment advisor at Arrington Capital in a tweet.

Mainland China, the world’s largest consumer of smartphones, has been dealing with a pandemic-led economic crisis this year that has seriously hit iPhone sales.

Customers look at the new iPhone14 at an Apple store in Wuhan, Hubei Province, China on Sept. 16, 2022. Getty Images

iPhone 14 sales in China are 11 percent below last year’s initial sales for the earlier iPhone 13, according to a note by Jefferies, the financial services group.

The underwhelming release of the new model caused a drop in market value for key suppliers such as Taiwan Semiconductor and Hon Hai Precision Industry, which are heavily reliant on sales of iPhone related products for the bulk of their revenue.

Shares of Taiwan Semiconductor, which makes smartphone computer chips, fell 2.2 percent, while the world’s largest iPhone assembler, Hon Hai Precision Industry lost 2.9 percent.

Apple said on Sept. 26, that it would shift some iPhone 14 production from China to India amid geopolitical tensions and supply chain problems in the East Asian nation.

In the end, the concerns about the lack of demand for the new iPhone model are “more bark than bite,” said Morgan Stanley analysts to Forbes.