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Apple warns suppliers of 20% drop in new iPhone parts orders

Sources say US company prepares two OLED models earlier to avoid repeat of last year's delays

A visitor uses his iPhone X to take photos of the stage at the Apple Worldwide Developers Conference on June 4 in the U.S. state of California.   © Reuters

TAIPEI -- Apple has asked its supply chain to prepare around 20% fewer components for iPhones debuting in the latter half of 2018, taking a cautious approach toward smartphone shipments compared with last year's orders, industry sources say.

"Apple is quite conservative in terms of placing new orders for upcoming iPhones this year," one of the four sources, who is in the supply chain, told the Nikkei Asian Review. "For the three new models specifically, the total planned capacity could be up to 20% fewer than last year's orders."

The U.S. company last year placed orders to prepare for production of up to 100 million units of the new iPhone 8, iPhone 8 Plus and iPhone X, but this year Apple currently expects total shipments of only 80 million units for new models, two people said.

Apple did not respond to Nikkei Asian Review's request for comment.

Total iPhone shipments, including new and previous generations, declined 1% on the year in the October-December quarter to 77.31 million, Apple's data showed. The slowdown went beyond Apple, as worldwide smartphone shipments contracted 0.3% to 1.46 billion units in 2017, the first-ever decline in the industry, according to research company IDC.

The Nikkei reported earlier that the U.S. tech titan intends to introduce three new iPhones in 2018. Two will feature the costly organic light-emitting diode screens like the iPhone X, while a cost-effective model keeps the liquid crystal display screen used by the iPhone 8 range. All three models would carry the TrueDepth 3D sensing camera system to activate Face ID similar to the iPhone X model, industry sources say.

Apple's supply chain was told to prepare earlier for the two OLED models, in hopes of avoiding a delay similar to last year's, two industry sources said. The company, celebrating the 10th anniversary of the iPhone launch, introduced the premium iPhone X model last year with a price tag starting at $999. But component shortages as well as production quality issues with the 3D sensing feature kept the iPhone X away from shelves until November, more than one month after it was unveiled, likely harming sales of the gadget.

"The scheduled time frame for components for the OLED models to go into iPhone assemblers like Foxconn and Pegatron for final assembly falls in July, while the schedule for components for the LCD model would be in August," a supply chain source said. "Two OLED models are likely to be ready roughly one month earlier than the cost-effective LCD model, according to the current plan."

All three new iPhones currently are set to start shipping in September after Apple's annual product launch, despite speculation that the new 6.1-inch LCD model might be delayed due to production quality issues.

"The production yield for the LCD model's 'touch' function is not satisfactory at the moment, but it is improving," one of the supply sources said. "The cost-effective model is viewed as the tool for Apple to boost its total shipment volume this year, and all the suppliers are doing everything they can to make sure the LCD one hits the shelves as soon as possible."

Two sources suggest bottlenecks exist in integrating the 3D sensing module onto the LCD screen for the first time, but that the situation is improving. Last year, only the iPhone X model -- with an OLED screen -- came equipped with the 3D sensing feature, which requires making a notch to fit the module onto the display. For this year, Samsung Electronics would still dominate orders for iPhone OLED screens, while Japan Display Inc. and LG Display split orders for the LCD screens.

Apple suppliers are undergoing the verification process for the new iPhones this month, one source said. Apple also is finalizing the assembly schedule with Foxconn -- known formally as Hon Hai Precision Industry -- Pegatron and Wistron, which will influence the factory recruitment plans of these Taiwanese companies, this individual said.

Foxconn remains the largest iPhone assembler for the upcoming models in 2018. The company will handle all of the 5.8-inch OLED smartphones, while also holding shares of 80% to 90% for the 6.5-inch OLED model and a 30% order allocation for the LCD version, according to Yuanta Securities Investment Consulting's supply chain checks.

Pegatron, a smaller compatriot to Foxconn, looks to secure 60% of the 6.1-inch LCD offering and 10% to 15% of the 6.5-inch OLED model, while Wistron snares the rest of the orders for this year's new iPhones.

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