Here's why you might not be able to find Apple's fastest growing product in stores or online
Can you name Apple's fastest-growing business unit? If you said the iPhone, well you are 100%...wrong. Ah, Services, right? Apple is on pace to hit its $50 billion revenue target for the Services division thanks to the billion active iPhone units that can still stream Apple Music and Apple TV+. But the Services division is not Apple's fastest-growing unit. That honor actually belongs to the Wearables, Home and Accessories sector which covers two of the manufacturer's most popular products, the Apple Watch and Apple's AirPods.
The Apple Watch is the most popular timepiece in the world topping shipments from brands like Rolex, Casio, and Seiko. And the wireless Bluetooth AirPods have a 50% share of the market for ear-worn accessories. For the last two quarters, Apple has reported 54% and 37% annual revenue gains for the Wearables division. Back in March of last year, Apple released the second-generation AirPods with the H1 chip that drives the "always-on" Siri. In October, the premium AirPods Pro was launched with a new design, active noise cancellation, water-resistance, and improved audio quality.
The AirPods assembly lines might only run at only 50% of capacity once production starts back up
During calendar 2019, Apple sold 60 million pairs of AirPods and it planned to increase first half 2020 production to 45 million pairs. On an annualized basis that works out to a 50% hike in production. But the Nikkei Asian Review reports that the deadly coronavirus outbreak, responsible for the death of over 600 people, could force Apple to change its plans. Currently, AirPod stocks are so low that all available units are being reserved for the online and offline Apple Stores. And there is still a one-month waiting period for those ordering the AirPods Pro from Apple's online store although the standard AirPods are in stock.
The premium Apple AirPods Pro feature active noise cancellation
And with the coronoavirus forcing the supply chain to shut down, the three companies that actually produce the AirPods, Luxshare-ICT, Goertek, and Inventec, have on hand only two weeks of the supplies needed to manufacture the accessory. The trio will have to wait for the supply chain to start producing more components before they can make enough AirPods to cover demand. A person familiar with the situation told the Nikkei, "Because of the virus outbreak, it has already been about two weeks since the assemblers have shipped any new AirPods series. All of the stores and carriers selling Apple products are really counting on suppliers to resume work next week."
GF Securities analyst Jeff Pu told clients in a note that "For the fast-growing AirPods segment, the coronavirus outbreak only creates the supply shortage issue .. the demand won't be hampered much," said Jeff Pu, an analyst with GF Securities. "We and most investors do expect the production could gradually pick up the pace once production resumed. ... As for how fast, there are still uncertainties, as it depends on whether the contagious disease is contained."
This coming Monday, February 10th, Apple's major iPhone assembler Foxconn is expected to go back to work along with major supply chain companies like Quanta Computer Inc., Inventec Corp., and LG Display Co. And that happens to be when the three aforementioned AirPods manufacturers restart production of the accessory. But the trio won't immediately be able to press a button and restart the assembly line from where they left off. One unnamed source said that Luxshare-ICT, Goertek, and Inventec will be lucky if their factories are humming at a 50% utilization rate next week. That's because of the depleted supply chain. As this anonymous source stated, "One of the big concerns is whether other parts suppliers in China can smoothly resume work to produce enough parts for final assembly. We really have to wait and see how things play out next week. If the assemblers could not get enough supply of parts in two weeks, it will be a big problem."
You might recall that last July Apple asked the two AirPods manufacturers based in China (Luxshare and Goertek) to construct facilities in Northern Vietnam to churn out AirPods. At the time, this was being done because of the U.S-China trade war and the implementation of tariffs on some products manufactured in China and shipped to the U.S. While moving some production to Vietnam to evade the virus sounds like a great idea, the manufacturers would need managers and other top employees to make the trip from China. Unfortunately, Chinese nationals are currently banned from entering Vietnam because of the coronavirus.
So production of Apple's fastest-growing product might not hit the number that Apple had originally planned for before the virus hit. Whether Apple can make up the lost ground during the second half of the year will depend on how fast Luxshare-ICT, Goertek, and Inventec can get the assembly lines running at full capacity.
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