Apple is reportedly cutting down the production of its wireless earbuds and headphones due to a drop in sales and increased competition from other brands.
Citing sources familiar with Apple’s plans, Nikkei reports that initially, Apple planned on producing 110 million units for the entire year. That figure has dropped to between 75 and 85 million units.
The report also does not specify which AirPods model will undergo a production cut. If you are not familiar, Apple currently sells one pair of over-ear headphones called AirPods Max,
followed by the AirPods Pro and the second-generation AirPods
Apple is trimming its planned production of AirPods wireless earphones by 25% to 30% this year as intensifying competition dents sales of the U.S. tech giant’s fastest-growing product line, sources briefed on the matter told Nikkei Asia.
Apple now expects to make between 75 million and 85 million units for 2021, compared with a previous production forecast of 110 million units.
The downward revision indicates that demand is weakening for AirPods, whose 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.”
The retail price of AirPods Pro on T-Mall, one of the leading Chinese e-commerce platforms, is 1,498 yuan ($231), a 25% discount compared with its original price tag of 1,999 yuan.
The U.S. tech giant hopes that new AirPods slated to be introduced this year will stimulate sales, the people said.
Apple shipped around 72.8 million units of AirPods last year, dominating the market for Bluetooth true wireless headphones with a 31% share, research company Counterpoint Research’s data shows. Wearables and other accessories, which include AirPods, the Apple Watch and HomePod, accounted for $12.97 billion in revenue, or over 11% of Apple’s total, in the last three months of 2020.
But despite its leading position, sales fell short of Apple’s expectations — the company had requested that suppliers build around 80 million to 90 million AirPods last year, multiple sources 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 toward the end of last year, as more users turned to cheaper wireless earphones. The MacBook and iPad lineups, by contrast, have been enjoying robust demand thanks to the coronavirus pandemic boosting the stay-at-home economy.
Apple has played a major role in cultivating the market for truly 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.
This surge in competition has eroded Apple’s market share, from 60% in 2018 and 47% in 2019 to 31% last year, according to data from Counterpoint.
“It is not possible to grow 30%, 40%, 50% by shipments every year for a long time. … At some point the growth will slow down and normalize,” said an executive-level source. “The time of high growth for AirPods might be passed.”
Apple did not respond to Nikkei’s request for comment as of publication.
Liz Lee, an analyst with Counterpoint Research, told Nikkei Asia that her agency expects global shipments of true wireless headphones to grow 33% this year, to 310 million units. AirPod shipments will 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%. 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% in 2019 to 12% 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.
AirPods are also 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 extensively expanded their production capacity in northern Vietnam since 2019, taking advantage of the 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% and net income doubled last year, while Luxshare’s revenue rose 48% and net profit grew more than 50% during the same period.
However, Luxshare’s shares have declined more than 41% as of Monday from their recent high in early January, and are more than 30% lower for the year. GoerTek’s shares are around 15% lower than their recent high in January.
