Rumor: Apple Orders Higher Production Volumes for iPhone 7



Slowdown in iPhone production has affected suppliers

The first quarter of 2016 saw declines in revenue for many semiconductor companies with exposure to the Apple (AAPL) iPhone. This came after Apple scaled back production of its iPhone 6s and 6s Plus. Production cuts sent some Apple suppliers into losses. Sharp, which was acquired by Apple’s primary assembler Foxconn, and Sony’s (SNE) division that serves Apple reported operating losses in 1Q16.

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Rumors fly that Apple ordered higher production volumes for the iPhone 7

With stressed iPhone 6s and 6s Plus sales, all suppliers have high hopes for Apple’s upcoming flagship product, the iPhone 7, scheduled to launch in September 2016. Recently, there was a report in Taiwan’s (EWT) Economic Daily that Apple has ordered its component suppliers to produce components for 72 million–78 million iPhone 7 units in 2016. That’s 15% more than analysts’ estimate of 65 million units. This would be the largest iPhone production since 2014 when Apple launched its iPhone 6.

Semiconductor industry reacts to Apple news

The news has spiked optimism among many Apple suppliers such as Texas Instruments (TXN), Skyworks Solutions (SWKS), NXP Semiconductors (NXPI), Qorvo (QRVO), and Cirrus Logic (CRUS). These companies reported revenue declines or slowdowns in the last quarter due to the scaleback of iPhone production.

These companies realized the risk of too much dependence on Apple and thus started diversifying into adjacent markets. If the rumor of iPhone 7 production is true, these suppliers would stand to benefit in multiple ways. The increase in content per device and a 15% increase in unit volume would boost their revenues. Growth in adjacent markets would also add to their revenues.

In the next part of the series, we’ll see how rumors of Apple’s iPhone 7 production is driving semiconductor stocks.


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