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Apple to start producing first 5G iPhones in mid-September

Tech giant shortens delay but could still miss 80 million-unit target for 2020

Apple is racing to make up for lost time and release its 5G iPhones with as small a delay as possible. (Source photos by Yoshiyuki Tamai and Reuters) 

TAIPEI -- Apple has overcome travel curbs and other coronavirus disruptions to begin initial production of its 5G iPhones in mid-September, narrowing the production delay to just weeks instead of months, the Nikkei Asian Review has learned.

Manufacturing will begin on a limited scale, with mass production expected to begin gradually between the end of September and early October. This timetable is still behind Apple's usual schedule over the past few years, when mass production began in August for lineups released in September, but it is a large improvement compared with the situation a few months ago, two sources familiar with the matter said.

Given the lost time, however, Apple may fall short of its production target for the year. The California tech giant ordered components for up to 80 million 5G iPhones, but sources say the actual number produced this year may end up being between 73 million and 74 million, with the rest deferred into early 2021, two sources with knowledge of the matter said. 

At the same time, Apple has also significantly boosted manufacturing orders for the upcoming iPads to meet demand for teleworking and remote learning, sources said, an indication of the company's optimistic outlook for stable demand for the remainder of the year.

Apple announced Tuesday that it will hold its annual launch event on Sept. 15, where it is expected to unveil new products.

Production of the 5G phones will start with at least one model, the lowest-priced version with a 6.1-inch OLED screen and two rear cameras. This model accounts for around 40% of the production orders Apple has placed for 5G handsets, sources added. The most expensive model will be the 6.7-inch, triple-camera 5G iPhone.

Apple managed to gear up production for new iPads recently without much disruption from COVID-19. Production orders for new iPads have reached as much as 27 million units for September-December, one of the people said, nearly as much as all iPad models -- both new and old -- produced in the second half of last year. Apple already increased its iPad orders for the first half of 2020 to meet relatively healthy demand spurred by the coronavirus pandemic, Nikkei earlier reported.

Apple is also preparing a new accessory, known as the Airtag, that will allow users to track non-Apple devices, a source with knowledge of the device said, adding that the new gadget has already gone into production.

The first MacBooks using Apple's in-house designed central processing units, rather than Intel's CPUs, are also scheduled to be released in the coming months, the company announced, while Bloomberg has reported that updated versions of the Apple Watch and HomePod will go on sale this year.

However, Apple currently has no plans to introduce a new generation of the budget iPhone SE next spring, several people with knowledge of the matter said. Some market watchers had expected the company to revamp the model each year to revive sales. The iPhone SE, released this April with a starting price tag of $399, has helped boost Apple's total shipment volume and sustain sales momentum as the company prepared for its first 5G iPhone lineup. Apple's iPhone shipments grew 11.2% on the year during the April-to-June quarter, according to IDC data, making it the only smartphone maker that saw unit sales increase amid the global pandemic.

Apple has gone to great lengths to reduce the production delays for its much-anticipated 5G smartphones.

In past years, the company stationed staff at manufacturing sites to resolve any engineering issues in the runup to mass production. Coronavirus-related travel restrictions, however, have forced Apple to do much of this work remotely and to request all suppliers deliver final samples to the U.S. To maintain secrecy, one source said, all items, even tiny ones, were packed into huge boxes and shipped in special-purpose trucks to Hong Kong, where they were loaded onto a plane bound for California, so lead designers and engineers there could sign off on the samples.

"This year this kind of secretive sample delivery increases a lot, but Apple is willing to spend as much money to protect their highly-confidential unfinished products," the person said.

"We've managed to shorten the delay significantly and we are not stopping here," said another supply chain executive. "The final assembly for some models is still going to be early October, but we are working to keep moving the production as early as possible."

The engineering verification processes for this year's new iPhones have been particularly challenging for Apple, as the complicated procedures and major spec upgrades from 4G to 5G connectivity involve a lot of back-and-forth, hands-on testing by both the American company's engineers and its suppliers in Asia.

The state of California's "shelter-in-place" order and the ongoing quarantine requirement for foreigners entering China disrupted development of the 5G iPhones so severely that in March Apple even discussed the possibility of postponing the launch of the lineup until next year.

Apple plans to roll out a total of four 5G iPhones with three different screen sizes -- 5.4-inches, 6.1-inches and 6.7-inches -- all of which will use the advanced organic light-emitting diode, or OLED, display technology.

The U.S. tech giant initially ordered components for around 100 million iPhones earlier this year, but lowered that target to around 80 million after the outbreak of the coronavirus, Nikkei reported earlier.

Unlike the typical manufacturing pattern over the past years, in which production is ramped up week by week, the planned production volume for the upcoming 5G iPhones will be similar for each week, which should help suppliers recruit, train and sustain production line workers and avoid labor shortages and spiking costs, sources familiar with the situation said.

Apple's component and parts suppliers, as well as final assemblers Foxconn, Pegatron and Wistron, are currently gearing up in preparation for the production of the upcoming iPhones, though the start date for production for the four 5G iPhone models varies, sources said.

"Production lines will be qualified one by one to enter mass production mode. The bigger scale of mass production will happen around the beginning of October," one executive-level source said.

All production of the 5G iPhones and new iPads remains in China this year. AirPods assembler Luxshare-ICT, which bought an iPhone plant from Wistron in July, will begin assembling a small number of iPhones next year, the Nikkei reported earlier.

Jeff Pu, an analyst with GF Securities, said Apple is betting on the 5G iPhones to drive sales growth. "Even though it's the year of COVID-19, Apple is reserving relatively healthy orders from the supply chain and we don’t see much disruption for the final production. The delay looks manageable at the moment," he said.

"We think Apple iPhone sales will be mostly boosted by the rolling out of all 5G models by the end of this year, and we expect Apple’s iPhone unit sales will return to growth, reaching an estimated 215 million units by next year of 2021, from 190 million units for this year."

Apple declined to comment.

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