Apple to cut new iPhone SE output by 20% next quarter, report says

The Russia-Ukraine conflict and rising inflation have led to a slump in consumer demand

Apple plans to cut output of its newly launched iPhone SE by up to 20 per cent in the second quarter of this year as consumer demand slumps amid the Russia-Ukraine conflict and looming inflation, Nikkei Asia reported.

That would see production orders for the phone drop by between two million to three million units, the report said.

Apple also reduced its orders for the AirPods wireless headphones by more than 10 million units for all of 2022, due to expectations of low demand.

The company paused all product sales and limited the functionality of other services in Russia this month.

“We are deeply concerned about the Russian invasion of Ukraine and stand with all of the people who are suffering as a result of the violence,” Apple said.

The global smartphone market is expected to record a drop in demand this year owing to the conflict, a report by market intelligence company Strategy Analytics found.

It estimated that, under the best-case scenario, global smartphone shipments will grow only 1 per cent this year compared with last year.

"The downturn will mainly come from the damped consumer spending in Russia, Ukraine and other related markets," it said.

"Coupled with the declined smartphone volumes, we expect global smartphone average wholesale prices will keep rising facing the lengthened supply constrain and higher inflation rate, as well as higher logistics and related costs."

Russia, which has been hit by sanctions owing to the conflict, is a major exporter for a variety of raw materials used in electronics production.

Palladium, for example, is used in memory cards and sensors, while titanium is used in the chassis of iPhone models.

As of December 2020, Apple listed 10 Russia-based metal smelters and refiners in its supply chain.

This month, the price of nickel – which is used in boat propeller shafts, turbine blades and batteries – more than doubled for the first time ever to $101,365 a tonne, before falling back to about $80,000, prompting the London Metal Exchange to suspend its trading.

Russia is the world's third biggest producer of nickel and accounted for about 11.3 per cent of total nickel output in the world in 2020.

Supply chain disruptions, as well as rising energy prices, have also led to a sharp increase in inflation globally. Britain’s inflation rate surged to a 30-year high of 6.2 per cent in the year to February, and in the US, it hit a 40-year high of 7.9 per cent.

Soaring inflation has curtailed purchasing power in the hands of consumers, with discretionary spending on items such as iPhones now facing a cut.

US consumer spending for February dropped 5 per cent compared with a year earlier, a report from Salesforce showed.

Apple launched its third generation iPhone SE with a view to enticing buyers who were not prepared to pay about $1,000 for the flagship iPhone models.

The phone retains the design of the 2020 version, which was based on 2017’s iPhone 8 (the original SE from 2016 was a 5S clone), with a 11.9-centimetre LCD screen and curved edges.

It features upgrades such as an A15 Bionic chip, making it 1.8 times faster than the iPhone 8, better battery life and improved durability.