Apple News & Analysis : Three Guys And A Podcast

Why is Apple Cutting orders?

by: Karl Johnson | Jan 16, 2013

Iphone5The Wall Street Journal is reporting that Apple is cutting some of its iPhone 5 part orders by as much as 50%. One if the main parts listed in their reduction claim is the screen. The same report also speculates that the reason for the reduction is weak iPhone 5 demand. Is that the only possible reason?

Other news sites are speculating that Apple may be getting ready to update the iPhone in a few months. This would change the iPhone product cycle from yearly to every six months. While both could be true or partially true, the iPhone update looks more plausible for the following reasons:

  1. Tim Cook is a supply chain master and is it unlikely his team was surprised with a 50% reduction in demand. Apple’s just in time production allows them to adjust production more quickly to meet demand so demand changes are usually small.
  2. Apple usually reduces parts purchasing orders when they are getting ready to updated their products, so this Wall Street Journal report is inline with past product updates. The report also lists only some parts, not all, which also suggests an update, as most of the Phone may stay the same.
  3. Rumors have been circulating around about a new iPhone or a cheaper iPhone coming out this spring. Apple has also been rumored to be switching to a six months product cycle for the iPhone as well. Both rumors make more sense when linked together.

A six month product cycle for both the iPhone and iPads makes a lot of sense. The current annual cycle leads to very high demand during the release of a new product, and very weak demand at the end of the cycle. Switching to a six month cycle would even out the demand for the iPhone and put less pressure on the supply chain during initial production ramp and the distribution rush.

Tim Cook is the supply chain expert at Apple. With Tim now in charge, it only makes sense that Apple will be preparing products and their release dates to solve supply chain issues, versus keeping to their annual launch drumbeat. All of this smoke points to a some form of fire, likely being a new version of iPhone arriving some time this spring.

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1 Comment

  1. Bill ~ January 16, 2013 10:41

    Interesting take. Hadn't thought about a product update. Thanks! #

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