Apple IPhone Order Isn’t a Clear Signal of Demand Surge

Investors are cheering the news that Apple Inc. is increasing the output for its next lineup of iPhones. While it may seem like a positive signal for future demand, reality is a bit more complicated.

Bloomberg News reported late Tuesday that Apple has told its suppliers to make as many as 90 million next-generation iPhones for its initial run, a figure that would be an increase of up to 20% over the prior year. According to the report, the Cupertino, California-based company is expected to introduce four models in September with designs similar to 2020’s phones and incremental feature upgrades — including a faster processor, better camera and improved displays. Apple shares rallied 2% in early trading Wednesday after the report.

But beyond a forecast for greater iPhone demand, there are other reasons Apple may be asking for more production. First, the most obvious one is calendar shift. Last year, the smartphone maker delayed the release of its iPhones from September to October, which compressed the period for sales into the end of the year. With the return of a more normal schedule, there will be an additional month to sell the new models this fall and holiday season, which requires more inventory. Second, Apple could also be managing its suppliers to guard against component shortages. The semiconductor industry’s chip shortages have already started hurting sales of Apple’s non-iPhone products. During the company’s last earnings call, executives projected chip shortages for iPads and Macs were going to reduce its June quarter revenue by $3 billion to $4 billion. Forcing suppliers to increase their manufacturing capacity would be a prudent way to minimize the possibility of shortages for the iPhone.

Frankly, the success of the 2021 lineup is far from assured. Apple’s annual iPhone launches tend to alternate every couple years between large feature upgrades that spur strong demand and small improvements with similar designs. After the introduction of the iPhone 12 last year — which was the first model to incorporate higher-speed 5G capabilities — this year’s updates will be minor in comparison. That could be a problem because Apple’s biggest sales disappointment years — including the iPhone 6S and iPhone XS — have come when the upgrades were incremental. 

Other factors may crimp demand this coming year. As the pandemic subsides, consumers are shifting spending away from devices toward services and experiences such as travel. It would not be surprising if iPhone demand slows as the economy reopens and the world normalizes. There are already signs of the transition away from physical goods. Bank of America credit card spending for consumer electronics has shown a sharp decline over the past three months. And earlier this week, both IDC and Gartner published second-quarter PC shipment data that showed growth had slowed considerably compared with the previous quarter. Finally, government data from China suggested iPhone shipments fell by nearly 20% year-over-year there last month.

Ultimately, a production increase for iPhones could be good news about future demand. But it may be wise to not get overly excited. It is more likely a statement about prudent supply-chain management than anything else. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron’s, following an earlier career as an equity analyst.

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