Please ensure Javascript is enabled for purposes of website accessibility

Investors Shrug Off Fears of Apple iPhone Delays

By Evan Niu, CFA - Jul 17, 2017 at 7:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Even if there are delays, those sales probably won't be lost.

Typically, Apple (AAPL -0.14%) investors are quite sensitive to iPhone rumors, given the financial significance of the company's dominant revenue driver. That's why it's somewhat surprising that investors appear to be shrugging off the latest report that Apple may face some delays in launching this year's trio of iPhones.

DIGITIMES is reporting that iPhone production has been delayed, citing China's Economic Daily News. The production yields at Apple's two largest contract manufacturers, Foxconn and Pegatron, remain low, and volumes haven't reached mass-production levels. The delays are notably even affecting the non-OLED models, which are expected to come in 4.7-inch and 5.5-inch display sizes. Apple usually begins volume production in June and July ahead of launching new models in the fall, when it ideally needs to have millions of units available to support the launch. This time around, the company and its manufacturing partners may not begin volume production until August.

Multiple iPhones laying flat

Image source: Apple.

Shares didn't fall -- instead, they enjoyed modest gains today. What gives?

Delays may already be priced in

One possible explanation is that there have already been plenty of stories about possible iPhone delays this year, so investors may have already priced this information in. Prior reports have suggested that Apple is still having trouble integrating Touch ID into the display, and may even ditch the fingerprint sensor altogether in favor of 3D facial recognition.

We already know that OLED production capacity throughout Asia is still in the process of ramping up, as many panel manufacturers continue to invest in the technology. That's also largely why Apple is only expected to include OLED displays in its flagship iPhone this year, but may adopt OLED throughout the iPhone lineup in 2018 as yields and overall capacity improve.

Investors may also realize that even if Apple is facing some delays, its strong customer loyalty rates reinforce the idea that Apple won't lose many of those sales; those sales will just be booked later, as many analysts believe the "iPhone 8" will trigger a "supercycle" with a slew of new features.

Word on the Street

It also probably helps that Morgan Stanley analyst Katy Huberty issued a bullish research note on Apple this morning as well, boosting her price target from $177 to $182 while reiterating an overweight rating. Huberty is incorporating the expected delays into her model, and has adjusted her near-term estimates. The analyst doesn't expect the OLED iPhone to launch until October, which falls into the fourth quarter (the first fiscal quarter of Apple's fiscal 2018). Specifically, we could be talking about 6 million unit sales that get shifted into fiscal 2018.

The key to setting expectations will come when Apple reports fiscal third-quarter results on Aug. 1, as the company will provide guidance for the September quarter. Even though Apple often provides a conservative outlook, there may be clues in the Mac maker's forecast in terms of sequential trends. For example, if Apple predicts a more modest sequential increase in revenue, that could be telling. For reference, Apple's revenue guidance for its September quarter last year called for a 10% sequential increase at the midpoint.

When Apple reports earnings two weeks from tomorrow, investors should focus on its guidance. Besides, the June quarter is usually a snoozer anyway.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$165.35 (-0.14%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.