Apple seems to have grossly underestimated the demand for its 5.5-inch iPhone 7 Plus. The device has already seen massive shipping delays as the demand has outstripped its supply. The Cupertino company is trying to hit the supply/demand equilibrium by the end of the holiday quarter, but Tim Cook told investors that Apple might not meet all the iPhone 7 Plus demand by the year-end.
Demand much stronger than Apple’s initial forecast
During Apple’s fourth-quarter earnings call on Tuesday, an analyst asked Tim Cook whether the company could meet the massive demand for the iPhone 7 Plus by the end of the quarter. “It’s hard to say,” responded the Apple CEO. Tim Cook said he was confident about meeting the iPhone 7 demand, but it’s an entirely different story with the iPhone 7 Plus.
Cook admitted that demand for the Plus version was much stronger than the company’s “forecast going into the product launch.” The holiday quarter is crucial for Apple as its sales have been declining for the past several quarters. The discontinuation of Samsung’s flagship Galaxy Note 7 following battery explosions is expected to boost sales of the iPhone 7 Plus.
iPhone 7 and iPhone 7 Plus to bring Apple back to growth
The iPhone sales have been declining due to market saturation and competition from Android vendors that offer high-end smartphones at much lower price points. Apple’s CFO Luca Maestri said the company was supply constrained on the iPhone 7 and 7 Plus. The tech giant is selling everything that it is making, so competition isn’t particularly relevant to Apple at this point.
Tim Cook told investors that after several quarters of declining revenues, Apple would return to growth in the current quarter. For the current quarter, Apple forecasts revenues between $76 billion and $78 billion, a 1% growth compared to the same quarter a year ago. During the September quarter, Apple’s sales declined by 9% to $46.85 billion and quarterly profits fell 19% to $9 billion.
Apple wouldn’t want to rush things the way Samsung did
If Apple can’t make as many iPhone 7 Plus units as users want in time for the Christmas shopping rush, it could lose some revenues. IDC analyst John Jackson said if the company is not able to get the Plus version into the hands of people who want it right now, those dollars are not going to be in its hands. The iPhone 7 Plus has a higher price tag, but it sports a dual-camera system that is attracting consumers.
Apple cannot speed up production overnight. The company does things to perfection, and it wouldn’t want to rush things and create inferior quality products the way Samsung did. Luca Maestri said it was almost “impossible to know” how the discontinuation of Galaxy Note 7 would affect the iPhone 7 sales. Apple expects holiday quarter gross margins to be between 38% and 38.5%, versus the Wall Street estimates of nearly 39%.