You can’t read many tech websites these days without seeing something about the iPhone X. For investment-focused sites such as ValueWalk, it’s all about demand and how many buyers want to get the most expensive model, but there’s one problem. If the iPhone X supply really is going to be as small as is expected, what will consumers do then?
Analysts fail to poll consumers about what they will buy if they can’t get an iPhone X due to lack of supply. It’s an important question because Apple can’t sell something if its suppliers don’t make it. Of course they have three options: keep waiting, buy an iPhone 8/ 8 Plus instead, or don’t buy anything at all. And for those who say they will keep waiting until there is enough iPhone X supply that they can actually find one, the next question should be about how long they will wait.
iPhone X supply to be even smaller than initially expected
Citing sources familiar with the matter, The Nikkei reported on Tuesday that the initial iPhone X supply is expected to only be about 20 million handsets, which is only half of what had been planned. The media outlet said the order reduction is because of technical problems with some of the components for the Face ID facial authentication feature.
In fact, it sounds like the iPhone X has been beset with technical problems from day one because The Nikkei added that when mass production was just getting underway, defects started appearing in the “bonding process” for the OLED panels. Although those issues were mostly fixed by July, problems with the Face ID module continues, and the media outlet said manufacturers weren’t able to improve the number of good units until the end of September.
Suppliers are only able to manufacture 10 million iPhone X units every month at this time, with only 20 million expected to be delivered by December. Apple is reportedly negotiating with other manufacturers for production of some parts as it aims to improve output volumes rapidly.
Can Apple manage a “super” iPhone X cycle?
Morgan Stanley analysts released a lengthy report on the iPhone X and the suppliers that are building it. Analyst Katy Huberty continues to expect Apple to ship 262 million iPhone units during fiscal 2018, which started at the beginning of this month. She also increased her mix of the iPhone X to 47% of the total iPhone units during fiscal 2017, which would mean that she expects Apple to ship about 123 million iPhone X units.
However, in order to meet that target, Apple will have to significantly ramp its iPhone X supply if it’s only going to produce 20 million during the first quarter of the fiscal year. Her colleagues at Morgan Stanley are estimating that Apple’s suppliers build 35 million iPhone X units during the current quarter, which is nearly double what The Nikkei claims they are able to build. This is particularly interesting because Morgan Stanley analysts factored in the “unsatisfactory production yield issue at 3S sensing module assembly and final system assembly.”
Will the hype wear off before iPhone X supply improves?
Other than the small iPhone X supply, the other potential issue we see in Wall Street’s overly bullish expectations for the handset is the hype. Consumers are riled up about the phone now, but what if they have to wait until next year? Those who feel they really need a new phone might not be willing or even able to wait until they can find one, and then there’s that whole price tag issue.
In a note earlier this week, Bernstein analysts described demand for the iPhone X as “substantial, but not exceptional” as 24% of the iPhone owners they polled said they wanted to buy one. These surveys are simply all over the map. Apple claims that people will be able to walk into an Apple Store on Nov. 3 and buy an iPhone X off the shelf, but with only 20 million handsets available for the whole world, it’s hard to imagine that being a possibility.
On the other hand, Apple may want consumers to think iPhone X supply is shorter than it really is, so it might have “leaked” that detail to The Nikkei to try to boost demand After all, demand tends to go up if consumers perceive something to be rare, whether it’s actually rare or not. Looks like we will have to wait until Nov. 3 to find out what reality is as far as iPhone X supply and demand. We can count on analysts stalking Apple Stores to check out the lines.
CEO Tim Cook wouldn’t even comment beyond, “We’ll see what happens,” which anyone could take to mean anything at all. Perhaps he’s more like Tesla’s Elon Musk than most believe, but less flashy about it.
