August 26, 2016 11:00 pm JST

Apple may face iPhone 7 supply shortage at launch: source

DEBBY WU and CHENG TING-FANG, Nikkei staff writers

TAIPEI -- Apple may need to contend with a supply shortage of the soon-to-be-released new model of its iPhone during the first round of the rollout, due to problems with faulty components, the Nikkei Asian Review has learned.

"If Apple sticks to its launch schedule from last year, there may not be enough supply at the beginning, as some suppliers are still trying to fix low yield rates of their components," an industry source familiar with the issue said.

The yield rate is a measure of how many salable units a manufacturer gets at the end of the production process. Low yields could entail higher costs for manufacturers or failure to deliver enough volume of product to customers.

Apple announced the iPhone 6s and iPhone 6s Plus on Sept. 9 last year, and rolled out the devices in 12 regions on Sept. 25.

The source's claim is echoed by Jeff Pu, an analyst at Yuanta Investment Consulting.

Pu cut his forecasts for iPhone production to 114 million from 120 million, including both new and old models, in the July-December period, due to defects in the waterproof speaker and dual-camera module, which have yet to be resolved.

"We estimate total iPhone 7 builds to be 74 (million) in 2H16F, compared to 84 (million) for iPhone 6s in 2H15. Together with pricing pressure, we expect most Apple food chain suppliers to see (year-on-year) revenue decline for the rest of the year," Pu wrote in a note dated Aug. 23.

Demand down

Flawed components are not the only thing the Cupertino, California-based company is struggling to fix this year, amid weakening demand for its premium handsets.

The U.S. tech titan saw its revenue drop for two straight quarters since the beginning of this year on lukewarm market reception of the iPhone 6s and iPhone 6s Plus, the first time in 13 years that Apple has suffered a decline in quarterly revenue.

Analysts have also forecast a further drop in demand for the upcoming iPhone 7 series due to a lack of new features in the new models. People in the supply chain also say that Apple orders are falling compared to a year ago.

"The total order for core processor chips for Apple's new iPhones may drop up to 15% compared with last year," said an industry source familiar with the matter.

Another source from a major Apple supplier also confirmed that the U.S. company's placement of orders is very "conservative" this year. Still another said that a major supplier had got an initial order for only 54 million units of components for the new handsets.

"Apple's panel orders for new iPhones are dropping around 20% year-over-year, and that leaves major suppliers such as Japan Display hungry for more orders," said Ellike Chen, an analyst at Chinese research company Sigmaintell.

Apple did not reply to an emailed request for comment from the Nikkei Asian Review.

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