An Apple supplier says demand for consumer electronics is plummeting, but Bank of America analysts say people are still buying iPhones.
3/31/2022
Recent reports of Apple cutting iPhone SE production orders would indicate that demand for the world's most popular smartphone is falling. Add TSMC Chairman Mark Liu's comments this week that the chip supplier is seeing weakened demand for consumer electronics like “smartphones, PCs, and TVs, especially in China, the biggest consumer market,” and it would appear Apple might have a big problem on its hands. But analysts argue that iPhone demand is still strong.
Liu was speaking in his capacity as head of the Taiwan Semiconductor Industry Association. However, he addressed TSMC’s prospects directly, also saying that the company would probably not be changing its growth targets or expenditures this year because it expects automotive and high-performing computing demand would make up for the decline in consumer products. Nikkei Asia had previously reported that an anonymous supplier said Apple planned to cut iPhone SE production orders by 20% next quarter, and AirPod orders by 10 million in 2022.
But Bank of America analysts pushed back, writing that recent articles “might lead some investors to think there is risk to demand” in a note to investors. Instead, analysts said that they “believe demand for iPhones remains strong based on our analysis of iPhone trade-in prices.” The bank upgraded AAPL to “to buy” in December, saying it saw a 20% upside.
Apple lowered the trade-in value of an iPhone 12 Pro Max from $700 to $650, indicating that the company doesn't need to convince buyers to trade in older iPhones for newer ones. The company also now offers a more attractive option for customers who have avoided trading in their phones because of the high costs of new models: the relatively inexpensive $429 iPhone SE.
These are indicators that Apple can tap a more budget-minded market, bank analysts said. Chinese customers can still trade in iPhones as old as the 2014 iPhone 6, while a survey the bank conducted in January demonstrated that a quarter of global users have an iPhone 8 or older. That's a lot of people who will soon need to buy a new iPhone, and analysts are arguing that they are now more likely to do so.
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