At the end of September, Apple (AAPL 1.62%) wrapped up its fourth quarter of fiscal 2017. With the company scheduled to report earnings on Thursday, Nov. 2, investors will have plenty of new data to pore over. But Apple's latest iPhone sales will likely see the most scrutiny.
Investors will look to Apple's fourth-quarter results to get an idea of how Apple's new iPhone 8 and 8 Plus are faring. Launched with nine days left in the quarter, it will be interesting to see whether the new iPhone's availability was enough to help Apple outdo last year's iPhone sales, or if too many customers waited for Apple's new flagship iPhone X.
Looking to revenue guidance
The announcement of the iPhone 8, iPhone 8 Plus, and iPhone X in September marked the first time Apple launched a range of new iPhones but said customers would have to wait until November to buy the hottest, newest version. This unusual iPhone launch schedule has some analysts worried that Apple's fourth-quarter results could underperform management's own guidance for the quarter. After all, the iPhone accounts for well over half of Apple's overall revenue; if iPhone 8 and 8 Plus sales during the quarter were lower than iPhone 7 and 7 Plus sales last year, this could weigh significantly on Apple's ability to grow total revenue.
Apple's guidance for its fourth-quarter revenue was optimistic. Management said it expected fourth-quarter revenue to be between $49 billion and $52 billion. This guidance represents considerable growth from Apple's revenue of $46.9 billion in the year-ago fourth quarter. Indeed, the midpoint of this guidance represents 8% year-over-year growth in revenue, higher than Apple's 7% year-over-year growth in revenue during the third quarter. This guidance would be almost impossible for Apple to achieve without growth in iPhone sales.
One key determinant of whether Apple might meet its guidance is if management factored a later-than-usual launch for its flagship iPhone X into its forecasts. Given that rumors of production bottlenecks for Apple's iPhone X were circulating months before the smartphone's launch, chances are that the guidance planned for this delayed launch.
Production may be key
Interestingly, even if demand for Apple's iPhone 8 and 8 Plus is well below customer interest in the iPhone X, the availability of the iPhone 8 and 8 Plus at the end of the quarter still may provide a nice boost to iPhone sales. This is because Apple's deliveries of new iPhones at the end of its third quarter are almost always determined by production -- not demand.
Consider the year-ago fourth quarter. Apple's new iPhone 7 and 7 Plus units were severely supply constrained during the quarter. Before the quarter was over, the wait time on some iPhone models was more than a month.
This year, most versions of the iPhone 8 were either available to ship within a few days of an order or available in a nearby Apple store. Of course, this could have been because demand was exceptionally low. But it's unlikely that demand was too low, as Apple CEO Tim Cook said during the first weekend of iPhone 8 and 8 Plus availability that he was "thrilled" with customer response to the new iPhone.
Ultimately, Apple's ability to live up to its bullish guidance for total revenue during the quarter may be dependent on how iPhone 8 and 8 Plus production compared to iPhone 7 and 7 Plus production in the year-ago period. Given how similar the iPhone 8's form factor is to the iPhone 7, 6s, and 6, there's a good chance that production was robust.