Apple to Slash Production as Global Uncertainties Hurt Demand

Apple to Slash Production as Global Uncertainties Hurt Demand

Apple, Inc. (NASDAQ: AAPL) plans to cut the production of iPhone SEs by 20% in the second quarter of 2022 as looming inflation and the Russia-Ukraine crisis hurt the demand for consumer electronic goods, Nikkei Asia said citing sources.

The company launched its first 5G-capable budget phone iPhone SE this month. However, due to lower-than-expected demand, it has reduced its quarterly production by 2-3 million units, the sources said.

Moreover, Apple has lowered AirPods earphone orders by over 10 million units this year because it seeks to bring down its inventory levels. The company shipped 76.8 million last year, data from Counterpoint Research showed.

The sources expect total shipments of AirPods to fall year-over-year in 2022.

The tech giant has also asked its suppliers to slash production of its iPhone 13 range by two million units due to weak seasonal demand.

Apple’s decision to manufacture a lesser number of products highlights the impact of the Russia-Ukraine conflict, which has only worsened the challenge of chip shortages.

An Apple supplier said, “The war has affected spending at the European markets. … It is understandable [consumers will] save the money for food and for heating.”

AAPL stock opened in red and was down 1.8% in the pre-market session on Monday.

Wall Street’s Take

Last week, J.P. Morgan (NYSE: JPM) analyst Samik Chatterjee reiterated a Buy rating on the stock with a price target of $210 (20.2% upside potential).

While talking about findings on the availability of iPhone SE 3 in key markets, the analyst said, “lead times have extended over the last week.”

While that is “an encouraging sign for demand,” Chatterjee would prefer to wait for more data before reaching any conclusion, given the constant shifts in logistics and supply due to Russia’s invasion of Ukraine and the resulting rise in inflation.

Overall, the stock has a Strong Buy consensus rating based on 23 Buys and five Holds. The average AAPL price target of $193.36 implies 10.7% upside potential. Shares have gained 44.8% over the past year.

Conclusion

It could be a tough year for Apple and other consumer electronic goods manufacturing companies as the sanctions imposed by the various governments across the world against Russia have caused issues within the supply chain, which is yet to completely recover from the impact of the COVID-19 pandemic.

The conflict has also caused turmoil in the raw materials, energy and oil markets, which is in turn leading to record-high inflation and unemployment in several nations. This is a cause of concern as people would choose to spend on essential items than consumer electronics.

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