Leading iPhone vendor expects orders to fall due to weak tech demand

Leading iPhone vendor expects orders to fall due to weak tech demand

(Bloomberg) – Mobile industry leader Murata Manufacturing Co. expects Apple Inc. to further scale back iPhone 14 production plans in the coming months due to weak demand, which would force the vendor to revise down its outlook for its handset components business.

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“Judging by the availability of handsets in stores, I see a downgrade happening,” Murata chairman Norio Nakajima said in an interview. “Hopefully it won’t be too deep.”

Apple has cut iPhone production due to slowing demand and may cut production further, Bloomberg reported last month. Nakajima’s comments add to evidence of slowing consumer spending hit by rising interest rates, high inflation and sluggish economic growth.

Apple stock fell 0.5% at 9:40 a.m. in New York.

Nakajima did not identify Apple by name – common practice for suppliers to the infamously secretive company. Still, Apple is his biggest US customer and he didn’t deny he was referring to the iPhone giant.

Murata has already cut its global smartphone production forecast for this fiscal year several times. The company originally forecast in April that handset makers would produce 1.37 billion units, a slight increase from 1.36 billion the previous year. It lowered its forecast to less than 1.2 billion in October and then to 1.09 billion two weeks later, both due to falling demand for low-end phones in China. Nakajima said the latest estimate is 1.08 billion, a slight downward revision due to slower handset sales by Chinese manufacturers.

“If our forecast were to drop further, it would be because of the US customer,” he said.

Apple no longer discloses iPhone sales, but Bloomberg News reported that it initially targeted production of 90 million units in the current quarter, which the company cut to 87 million due to the drop in request a month ago. UBS said this month that the entire iPhone 14 generation could be 16 million units lower than previous expectations.

The Kyoto, Japan-based manufacturer is a mainstay in the smartphone industry, supplying electronic modules and components for Apple iPhones, Samsung Electronics Co. Android smartphones and major device makers in China. .

Bloomberg reported last week that Apple faces a shortfall of 6 million iPhone Pro units this year due to unrest at a manufacturing center in China. Still, Murata isn’t worried about supply issues because production can be clawed back in January and February, said Nakajima, 61. Weak demand is a concern, he said.

“I went shopping with my son last Sunday to buy him a handset from our main customer, and the store had every model and every color in stock,” he said. “I wouldn’t be surprised if, later on, the client revises its forecast even more.”

The global smartphone market is expected to continue to deteriorate in the next quarter, although some Chinese handset makers plan to launch new models during the period, Nakajima said. The makers are confident the new phones will sell well, but Nakajima said he had doubts because the new models don’t have enough exciting new features.

The phone market will begin to recover “at a gradual pace” in the fiscal year beginning in April, he said.

Despite China’s recent weakness, the world’s second-largest economy will remain an important market for the electronics industry, Nakajima said. Some of Murata’s customers are shifting production to Vietnam, India and other Asian regions, but a complete withdrawal from China is unlikely, at least in the next five years or so, he said.

Nakajima is managing a long-term project to build a production line for Murata that operates entirely in China, using local parts. The move is intended to address a potential deterioration in US-China relations – for example, Beijing requires that all products sold in the country rely on local components.

Information security is a concern, however, and Murata seeks to ensure that its proprietary know-how related to manufacturing technologies is not compromised, Nakajima said. The company can manufacture mature products such as multilayer ceramic capacitors in China, but will not move production of some newer components to the country, he said. Murata manufactures 65% of its products in Japan.

“China is a market that will grow further, so we have to be ready to seize the opportunity,” he said. However, “we cannot move the production of certain products, including high-frequency devices and communication modules that we only manufacture in Japan, because the protection of confidential information is a priority”.

(Updates with Apple actions in the fourth paragraph.)

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