LAS VEGAS/BEIJING -- The impact of Apple's planned 10% cutback in iPhone production for the January-March quarter is reverberating to its suppliers, as faltering Chinese sales cast a shadow over the device, which generates over $160 billion in annual sales.
Apple notified suppliers in the fall to prepare production of components for its three new iPhone models. But sales in China, which accounts for 20% of its proceeds, fell in the October-December period for the first time in six quarters, and global revenue is forecast to decline for the first time in nine quarters.
The pricey new iPhones, some of which can cost over $1,700, are attracting less interest compared to past models. In Japan and the U.S. shoppers are holding on to their old phones longer.
Apple shares, meanwhile, have plunged about 35% from their peak in October. The company's valuation has dropped nearly $400 billion in that time, as of Tuesday, to $715.4 billion from over $1.1 trillion.
Apple shares received a breather on Wednesday, trading more than 2% higher after CEO Tim Cook told CNBC the day before that he believes China's downturn is "temporary."
The sell-off by investors, meanwhile, has spread to iPhone suppliers. The combined valuation of 10 suppliers whose earnings are heavily swayed by Apple, such as U.S.-based Micron Technology, has sunk about 20% to $540 billion from $690 billion in October.
In China, Apple's assembly hub, Taiwan-based Hon Hai Precision Industry, better known as Foxconn, has cut 100,000 jobs since fall. Pegatron stopped new hires at its Shanghai factory in late December and laid off over 1,000 workers.
Japan Machine Tool Builders' Association Chairman Yukio Iimura said Wednesday that orders for 2019 are projected to decline about 12% to 1.6 trillion yen ($14.8 billion). The economic slowdown in China, the destination for 20% to 30% of Japan's machine tool exports, was cited as the chief culprit. But the iPhone's struggles have also hurt Japanese machine tools, which are widely used by Apple.
"Smartphone-related demand has slowed since autumn," said Tsuneo Murata, chairman and president of electronic parts maker Murata Manufacturing.
Meanwhile, factory operations at panel maker Japan Display are expected to be tough from January through March, said an analyst, clouding its restructuring efforts even further.
Apple's trouble should be seen as a warning about the future of the U.S. and Chinese economies, said Ethan Harris, head of global economics at Bank of America Merrill Lynch.
Apple slid on China's brand rankings to 11th in 2018 from fifth in 2017, according to a U.S. research company survey.
A significant update to its flagship device is likely planned for 2020, when 5G service will become available. Apple is planning to stake its recovery on new services made possible by the faster communications speeds, such as video streaming.