When Apple (NASDAQ:AAPL) reported fiscal third-quarter earnings last month, one of the most optimistic data points for investors was the company's strong guidance. Revenue in the fiscal fourth quarter is expected to be in the range of $49 billion to $52 billion. At the high end, that would represent an all-time revenue record for the September quarter. It gave investors some optimism that the flagship iPhone -- which we now know to be the iPhone X -- might actually ship on time despite rumors of manufacturing delays.
Well, it turns out that those delays are very real: iPhone X won't ship until November. If that's the case, how will Apple hit its ambitious outlook?
A tall order to fill
For context, in the year-ago quarter, Apple posted revenue of $46.9 billion, including sales of 45.5 million iPhones and 9.3 million iPads. The iPhone comprised a whole 60% of total revenue ($28.2 billion), and the iPhone average selling price (ASP) was $619.
There are many moving parts of Apple's business, with the iPad, Mac, and services performing particularly well recently, but as always, the iPhone business dominates results. Services revenue has been steadily rising with little to no seasonality, and should post another quarter of solid growth. The iPad's recent strength has been in units, offset by lower ASP as more affordable models are driving sales (iPad unit sales jumped 15% last quarter but iPad revenue only grew 2%). Macs are mostly holding steady.
Now that investors know to expect precisely zero revenue from iPhone X in the fiscal fourth quarter, the task of hitting $49 billion in sales at the low end looks like it could be a tall order to fill. iPhone 8 and 8 Plus will ship on Sept. 22, just eight days before the fiscal year closes on Sept. 30. Last year, iPhone 7 and 7 Plus shipped on Sept. 16, also just eight days before fiscal 2016 closed on Sept. 24, 2016, so the number of days of availability is comparable.
Apple has decided this year to boost pricing on iPhones even further, following a modest price increase for the 7 Plus last year related to the dual-camera system. iPhone 8 and 8 Plus will start at $699 and $799, respectively, up from the prior price points of $649 and $769. While the iPhone X will command an even heftier price of $999 to $1,149, that device won't affect fiscal fourth-quarter results.
Somewhat justifying that price increase, the base models will now start with 64 GB of storage, up from last year's base storage configuration of 32 GB. The incremental difference in costs for Apple is nowhere near $50, so starting at 64 GB for an extra $50 is still a net positive for Apple's gross margin. Irrespective of profitability, there should be a noticeable bump in ASP associated with the price increase. Quadrupling storage on either model to 256 GB costs an extra $150.
With demand likely to be heavily concentrated on the iPhone X, I wouldn't expect to see much growth in iPhone units sold this quarter, and it's extremely difficult to see ASP gains driving the iPhone business in the fiscal fourth quarter to the record levels that Apple is forecasting.