IPhone Delay Interrupts That Supply Chain Rhythm

(Bloomberg Opinion) -- For the first time since 2011, Apple Inc. didn't release a version of its flagship iPhone in September. That delay has had a massive ripple effect through its network of vendors, which makes parsing supply-chain data even more challenging than usual.

Since at least March, we knew that the next installment of the iconic device would be pushed back due to Covid-19. The pandemic initially hit manufacturing lines in China, but continued to impact the rest of the global lineup of companies that contribute to the product, all the way back to the team that develops it in Cupertino.

Foxconn Technology Group is the most obvious example. Its Hon Hai Precision Industry Co. unit, which assembles iPhones at factories chiefly in China, posted a 21% drop in September sales Monday. It's not alone. Largan Precision Co., which makes camera lenses for smartphones, reported a decrease of 22%. 

The declines resulted in a 7% fall in third-quarter revenue at Hon Hai, the largest for that period in over a decade. Largan had it worse, plummeting 20% for the quarter. Taiwan Semiconductor Manufacturing Co., the major provider of chips for gadgets, is expected to post 11% quarterly growth when it reports sales Thursday. That's respectable, but slower than recent quarters and could be further hurt by a a strengthening Taiwan dollar.

What makes the conundrum more revealing, and at the same time confusing, are the different tales being told at these companies. 

Largan's woes, for example, aren't limited to the iPhone delay. The September decline wasn't a one-time event, and actually followed double-digit drops in the previous two months, partly reflecting developments at Huawei Technologies Co. and Xiaomi Corp.

“Weakening demand for premium smartphone lenses and order cuts from Huawei are the two major factors weighing on product prices and lens shipments,” Bloomberg Intelligence analyst Charles Shum wrote this week of Largan. “Huawei, Xiaomi and other smartphone makers are expected to focus on selling more mid- and low-end models to maintain sales volume during the pandemic crisis.”

The takeaway here is that consumers may not be rejecting the latest iPhone itself, but simply saving their money and opting not to buy any new top-end smartphone amid the global economic uncertainty. Alternatively, the work-from-home trend and lack of other places to spend money (autumn in Paris, anyone?) could spur people to upgrade.

With the iPhone to be revealed next week, and the sales launch likely to be absent the ritual queues outside Apple retail stores, we won't know how well it's doing until press releases (to be glowing, of course) and news reports (fawning, perhaps) roll in during subsequent weeks. Market researchers may be able to give us hints by late October.

One of the comforting aspects of a September iPhone release was how it allowed revenue at suppliers to be broken into two distinct phases: ramp-up, reveal, and release in the third quarter; followed by momentum and holiday-season demand in the fourth. This year, it will be crammed into just one period. The first weeks of November and December will be critical for the analysts, traders and investors who parse supply-chain data to get a handle on the world's biggest tech company. Well before firms report quarterly revenue, Taiwanese companies are required to announce monthly sales. 

If October numbers, to be reported by Nov. 10, don't show massive spikes, then expect an overreaction in tech stocks. Some bulls will hold on for November data, out in early December, to prove themselves right. Many will wonder whether such data shows true strength, or is merely catch-up demand from a delayed release. But we won't get a fuller picture until early January, after the quarter is closed.

This all means that not only must consumers wait longer to get their hands on the shiny new toy, but supply chain watchers will be left on tenterhooks longer than usual.

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

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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