Apple supplier Goertek revises 2022 revenue by 60 per cent on AirPods production blow

Goertek’s revenues highly vulnerable as financial report shows it depends on very few clients
The production halt adds to Apple’s supply chain woes in China following hiccups at Foxconn’s Zhengzhou plant

Apple

Ben Jiangin Beijing

Published: 1:46pm, 5 Dec, 2022

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Chinese audio components maker Goertek, which makes AirPods for Apple, has revised its annual revenue estimates down by up to 60 per cent after a “major overseas client” requested it suspend production, dealing a blow to a supplier that is too dependent on one client, analysts said.

Goertek, based in eastern Shandong province, said in a filing to the Shenzhen exchange on Saturday that it has lowered its annual revenue estimates to as low as 1.7 billion yuan (US$244.4 million) from 4.7 billion yuan earlier.

The company said that it did not expect to resume production of the smart acoustic product this year, following the client’s request.

If first revealed that information in early November, saying the cutback would hurt revenue by 3.3 billion yuan in the fourth quarter, but added that a comprehensive “impact on the company’s business performance is still under review”.

Apple outsources the production of AirPods Pro from suppliers in China. Photo: AP Photo

Many analysts, including TF International Securities’ Kuo Ming-chi, indicated that the client was Apple and the product involved was the newly released AirPods Pro 2, whose assembly has been paused “more likely due to production issues rather than demand issues”.

Jefferies analysts also noted that production of AirPods Pro 2 was affected, adding that there were no other order cuts or plans to kick out Goertek from Apple’s supply chain.

Goertek started assembling Apple’s highly sought after AirPods Pro series wireless earbuds in 2020.

TF International’s Kuo said since Goertek was asked to suspend production last month, Apple shifted the assembly to Luxshare ICT, its primary AirPods Pro supplier, to fill in the demand before the holiday shopping season.

Goertek’s plunging revenue offers a cautionary tale for Chinese suppliers who are too reliant on a few major clients.

03:02

Foxconn dangles incentives for workers as iPhone shortages plague holiday season

Financial reports showed that Goertek’s clientele is highly concentrated, raising investors’ concerns over its diversity and profitability. Goertek earns nearly 90 per cent of total revenue from its top five clients, while its largest client made up more than 40 per cent of overall sales.

Goertek said in the filing on Saturday that its management team has been actively engaged in communications with the client for a solution.

The Goertek assembly hiccup comes at a time when Apple is facing other supply chain disruptions in China. The world's largest iPhone factory, operated by Foxconn Technology Group in the central Chinese city of Zhengzhou, saw an exodus of workers followed by violent clashes between temporary employees and local police over allowances and other issues.

Anger inside the world’s largest iPhone factory as Covid-19 spreads

Apple, which said it would ship fewer iPhones in its Pro series, has asked other suppliers in China to ramp up production and expedite plans to shift part of the production outside the country, according to a report by The Wall Street Journal.

Goertek’s shares rose 1.5 per cent on Monday after falling earlier in the day.

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