They told you so, Apple. Japan’s machinery makers gave Apple Inc. CEO Tim Cook a warning well in advance about what he didn’t seem to know: Chinese smartphone demand was plummeting. The iPhone maker blamed China for a cut in its revenue forecast Wednesday, which sent fresh ripples through the company’s long chain of suppliers across Asia. Apple “did not foresee the magnitude of the economic deceleration, particularly in Greater China,” it said in its release. Fanuc Corp., whose robomachines make the metal casings on iPhones, has been fretting about demand in China for a while. Understandably so. Fanuc’s Chinese orders, which account for around 20 percent of sales, were down 40 percent in the second quarter from a year earlier. Declining sales of its iPhone-making Robodrill were a good indicator of what was happening to smartphone demand.
The company and its peers have been waiting for orders from China to bottom — not just for electronics but also autos and general machinery. The country was the first of their markets to decelerate and head south. Japanese machine tool orders from China declined 70 percent in November from a year earlier. They had been slowing since March. Absolute order levels for electronics machinery, which are highly volatile and dependent on the timing of iPhone model releases, are almost down to the 2013-2014 trough and only slightly ahead of 2016 and 2017. Orders for all other types of machinery have plunged, a sign that the downturn may last for a while. The faltering outlook for Chinese demand has companies and investors on tenterhooks — after all, consumers there have buoyed sales for many global firms. Some are drawing comparisons to the sharp pullback in 2015 and 2016, when the broader economy was deteriorating. The difference this time is that consumers are flinching too.
Manufacturers that supply parts to the likes of Apple aren’t doing that badly. While they may not be buying equipment, their industrial utilization remains “healthy,” as Bernstein’s Jay Huang points out. Still, the U.S.-China trade war has cast a pall over suppliers and hampered their ability to get credit. How long it will take for confidence to return is anyone’s guess. But for those interested in gauging the prospects for Apple, keeping an eye on how the likes of Fanuc are doing in China may help.