Apple trims AirPods production as sales lose steam

Apple is trimming its planned production of AirPods wireless earphones by 25 to 30 per cent this year as intensifying competition dents sales of the US tech company’s fastest-growing product line, people briefed on the matter told Nikkei Asia.

Apple expects to make between 75m and 85m units in 2021, compared with a previous production forecast of 110m.

The downward revision indicates that demand is weakening for AirPods, of which shipments have been growing by double-digit percentages since their introduction in 2016.

“The most significant order reduction is for the second quarter toward the start of the third quarter,” said one of the people familiar with the matter. “The levels of inventory [in warehouses] and in-store stocks of AirPods are currently high . . . and demand is not as strong as expected.”

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The retail price of AirPods Pro on Tmall, one of the leading Chinese ecommerce platforms, is Rmb1,498 ($231), a 25 per cent discount to its original price tag of Rmb1,999.

The US tech company hopes that new AirPods slated to be introduced this year will stimulate sales, the people said.

Apple shipped about 72.8m units of AirPods last year, dominating the market for Bluetooth true wireless headphones with a 31 per cent share, according to Counterpoint Research. Wearables and other accessories, which include AirPods, the Apple Watch and HomePod, accounted for $12.97bn in revenue, or more than 11 per cent of Apple’s total, in the last three months of 2020. 

But despite Apple’s leading position, sales fell short of its expectations — the company had requested that suppliers build about 80m to 90m AirPods last year, multiple people with direct knowledge of the matter said. The unsold AirPods became inventory, they added.

AirPods are one of the few Apple devices that did not receive a significant sales boost towards the end of last year, as more users turned to cheaper wireless earphones. The MacBook and iPad line-ups, by contrast, have been enjoying robust demand as the coronavirus pandemic boosts the stay-at-home economy.

Apple has played a major role in cultivating the market for true wireless earphones, which have no wire connecting the two in-ear parts. Following the introduction of the first generation of AirPods, smartphone rivals including Samsung, Huawei and Xiaomi all launched similar devices. Smaller, unbranded, electronics makers have also joined the fray with cheaper alternatives.

The surge in competition has eroded Apple’s market share, from 60 per cent in 2018 and 47 per cent in 2019 to 31 per cent last year, according to data from Counterpoint.

“It is not possible to grow 30 per cent, 40 per cent, 50 per cent by shipments every year for a long time . . . At some point the growth will slow down and normalise,” said an executive-level source. “The time of high growth for AirPods might be past.”

Apple did not respond to Nikkei’s request for comment as of publication. 

Liz Lee, an analyst at Counterpoint Research, told Nikkei Asia that her agency expected global shipments of true wireless headphones to grow 33 per cent this year, to 310m units. AirPod shipments would also grow, she said, but Apple “will lose market share, as the competition is intensifying in the global true wireless headphone market”.

Counterpoint’s outlook for 2021 represents a significant slowdown from last year’s market growth of 80 per cent. Most of the expansion this year, moreover, will come from low-end and mid-tier products until the introduction of new high-end offerings, such as the latest AirPods, in the second half of the year, according to the research company.

Meanwhile, Chinese rival Xiaomi’s global market share doubled from 6 per cent in 2019 to 12 per cent in 2020, making it the world’s second-largest maker of true wireless headphones.

AirPods have been a rarity for Apple, enjoying rapid growth over the past few years while demand for iPhones slowed.

They are also one of the earliest products for which Apple aggressively diversified production away from China to Vietnam. Luxshare and GoerTek — the two Chinese builders of the devices — have extensively expanded their production capacity in northern Vietnam since 2019, taking advantage of supply chains built up in the country by Samsung. Unlike all previous Apple products, the AirPods Pro and AirPods Max were first mass-produced in Vietnam, not China.

The AirPods boom has been a blessing for the two Chinese assemblers. GoerTek’s revenue jumped more than 64 per cent and net income doubled last year, while Luxshare’s revenue rose 48 per cent and net profit grew more than 50 per cent during the same period.

However, Luxshare’s shares have declined more than 40 per cent from their highs in early January and are more than 30 per cent lower for the year. GoerTek’s shares are about 15 per cent lower than their high in January.

A version of this article was first published by Nikkei Asia on April 28 2021. ©2021 Nikkei Inc. All rights reserved

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