Apple plans to cut output of its newly launched iPhone SE by up to 20 per cent in the second quarter of this year as consumer demand slumps amid the Russia-Ukraine conflict and looming inflation, Nikkei Asia reported.
That would see production orders for the phone drop by between two million to three million units, the report said.
Apple also reduced its orders for the AirPods wireless headphones by more than 10 million units for all of 2022, due to expectations of low demand.
The company paused all product sales and limited the functionality of other services in Russia this month.
“We are deeply concerned about the Russian invasion of Ukraine and stand with all of the people who are suffering as a result of the violence,” Apple said.
The global smartphone market is expected to record a drop in demand this year owing to the conflict, a report by market intelligence company Strategy Analytics found.
It estimated that, under the best-case scenario, global smartphone shipments will grow only 1 per cent this year compared with last year.
"The downturn will mainly come from the damped consumer spending in Russia, Ukraine and other related markets," it said.
"Coupled with the declined smartphone volumes, we expect global smartphone average wholesale prices will keep rising facing the lengthened supply constrain and higher inflation rate, as well as higher logistics and related costs."
Russia, which has been hit by sanctions owing to the conflict, is a major exporter for a variety of raw materials used in electronics production.
Palladium, for example, is used in memory cards and sensors, while titanium is used in the chassis of iPhone models.
As of December 2020, Apple listed 10 Russia-based metal smelters and refiners in its supply chain.
This month, the price of nickel – which is used in boat propeller shafts, turbine blades and batteries – more than doubled for the first time ever to $101,365 a tonne, before falling back to about $80,000, prompting the London Metal Exchange to suspend its trading.
Russia is the world's third biggest producer of nickel and accounted for about 11.3 per cent of total nickel output in the world in 2020.
Supply chain disruptions, as well as rising energy prices, have also led to a sharp increase in inflation globally. Britain’s inflation rate surged to a 30-year high of 6.2 per cent in the year to February, and in the US, it hit a 40-year high of 7.9 per cent.
Soaring inflation has curtailed purchasing power in the hands of consumers, with discretionary spending on items such as iPhones now facing a cut.
US consumer spending for February dropped 5 per cent compared with a year earlier, a report from Salesforce showed.
Apple launched its third generation iPhone SE with a view to enticing buyers who were not prepared to pay about $1,000 for the flagship iPhone models.
The phone retains the design of the 2020 version, which was based on 2017’s iPhone 8 (the original SE from 2016 was a 5S clone), with a 11.9-centimetre LCD screen and curved edges.
It features upgrades such as an A15 Bionic chip, making it 1.8 times faster than the iPhone 8, better battery life and improved durability.
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Itcan profile
Founders: Mansour Althani and Abdullah Althani
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Sector: Technology, digital marketing and e-commerce
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How Tesla’s price correction has hit fund managers
Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.
It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.
The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.
Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.
Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.
He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.
AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”
A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.
Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.
Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.
Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.
By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.
Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.
In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”
Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.
She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.
Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.
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