China factories find new ventures amid slow Apple orders

Apple's suppliers are reeling from less-than-expected demand, but they could find opportunities in other smartphone or electronics markets.

China factories are facing idle capacity as Apple scales back orders for iPhones, according to the Wall Street Journal. While some might like to believe this is a temporary lull, it could be Apple facing a reality that many analysts have been predicting: Sales of the iPhone 6 and 6 Plus will be hard to beat. Additionally, Apple’s most important market is now China, where the smartphone space is already mature and saturated. The latest iPhone models, the 6s and 6s Plus, are not much different from the previous model, which might be contributing to the lower-than-expected sales. This resulted in idle capacity in the last two months of 2015, when factories would normally be ramping up production of Apple devices for the holiday season. This has largely affected the Taiwan manufacturing juggernaut Foxconn, but the biggest impact was at its Zhengzhou factory, where some workers were laid off.

Apple is not representative of the smartphone industry as a whole, but it does symbolize much of the high-end market. Overall, the smartphones space will still see a lot of growth globally in the next few years. Figures from IDC project smartphone shipments will rise to nearly 1.9 billion, up from 1.3 billion in 2014 (it estimated 1.4 billion units for 2015). Apple is expected to lose market share during that time, as Android increases from about 81 percent of the market in 2015 to 82.6 percent in 2019, according to IDC. Apple is estimated to drop from 15.8 to 14.1 percent. Apple and Android are seen to take a hit in market share in 2018, though, thanks to increased competition from Windows phone.

A decline in demand from Apple, though, does not necessarily mean a flood of new Android phones from China factories. Today’s idle capacity could be repurposed in other ways. Foxconn, for instance, is now working with Royal Group subsidiary Beijing Sun Shine on children’s education products in the form of wearables and virtual reality devices. A Deutsche Bank report on Jabil Electronics, another major Apple supplier with factories in China, shows concern over the fact that Apple is the company’s largest supplier as it faces slower growth, but it also notes that management is positive about electronic manufacturing opportunities. While the company could see better margins in electronic manufacturing, it also faces “weaker demand trends in mobility.” So while projections suggest opportunity is not dead in the mobile handset sector, Apple suppliers are also eyeing other electronics markets.