Apple To Slash AirPods Production Due To Competition From Cheaper Alternatives

Apple Inc AAPL expects to cut down on the AirPods wireless earphone production by between 25% to 30% Nikkei Asia reports.

What Happened: Weaker demand has compelled Apple to produce between 75 million and 85 million units for 2021, compared to the previous production forecast of 110 million units.

AirPods shipments have been growing at a double-digit rate since their 2016 introduction. The most significant order slump was noted for the second quarter toward the start of the third quarter. Warehouse inventory levels and in-store stocks were presently high with lackluster demand.

AirPods Pro was available at a 25% discounted retail price of $231 (1,498 yuan) on the Chinese e-commerce platform, T-Mall.

Apple had expected the new AirPods to drive sales. It shipped around 72.8 million units of AirPods last year, controlling the Bluetooth true wireless headphone market with a 31% share. Wearables and other accessories, including AirPods, Apple Watch, and HomePod, constituted over 11% of Apple’s total revenue in the last three months of 2020.

Still, the AirPods sales disappointed expectations. Apple’s last year order between 80 million to 90 million was added to the inventory as more users resorted to cheaper wireless earphones. 

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Samsung Electronics Co Ltd SSNLF, Huawei, and Xiaomi Corp XIACF XIACY launched wireless earphones following the AirPods launch. Smaller, unbranded electronics makers came up with cheaper alternatives too. Thus, Apple’s market share plummeted from 60% in 2018, 47% in 2019, to 31% in 2020. Xiaomi’s global market share doubled from 6% in 2019 to 12% in 2020.

Why It Matters: Counterpoint Research expects global shipments of true wireless headphones to grow 33% to 310 million units in 2021 compared to an 80% growth target for 2020. It also expected Apple to lose market share due to the competition. 

Most of the growth was estimated from low-end and mid-tier products until introducing new high-end offerings, like the latest AirPods, in the second half of the year. AirPods were one of the earliest products for which Apple aggressively diversified production away from China to Vietnam. 

Luxshare and GoerTek, the two key Chinese builders of the devices, have broadly extended their production capacity in northern Vietnam since 2019. GoerTek’s revenue jumped over 64%, and net income doubled last year. Luxshare’s revenue rose 48%, and net profit grew over 50% during the same period.

Price action: AAPL shares traded higher by 0.07% at $134.48 in the premarket session on the last check Wednesday.

Image Courtesy: Wikimedia