Please ensure Javascript is enabled for purposes of website accessibility

Some Great News for Apple Inc. iPhone X Production

By Ashraf Eassa - Oct 23, 2017 at 7:09PM

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

A respected analyst thinks that Apple's suppliers are close to resolving key iPhone X component production issues.

In a new research note from respected KGI Securities analyst Ming-Chi Kuo, summarized by MacRumors, Kuo says that Apple's (AAPL 1.62%) iPhone X production difficulties appear on track to be resolved.

Apple's iPhone X

Image source: Apple.

In the note, Kuo said that several component challenges face Apple and its suppliers. Among the affected components are the flexible printed circuit board (PCB) for the antenna, the flex PCB for the wide-angle lens, and the dot projector that's part of Apple's TrueDepth front-facing camera system, which is used to enable facial recognition.

All told, Kuo is cutting his iPhone X shipment estimates for the fourth quarter of this year to between 25 million and 30 million units, a five-million-unit reduction from his prior estimates. He did say, though, that shipments will "pick up markedly" in the following quarter.

Let's look at what this means for Apple's business.

An unusually strong second fiscal quarter

Apple typically unveils new iPhones in September and begins shipping all new models several weeks later. This usually means that Apple sees a small quantity of new iPhone shipments during its fourth fiscal quarter (which ends in September), with peak new iPhone shipments happening in the first fiscal quarter of the following year.

This year, though, it looks like the pattern in Apple's business will be different.

Apple unveiled three new iPhones this year, but the flagship model -- the iPhone X -- won't go on sale until Nov. 3, which is solidly within the first quarter of Apple's fiscal year 2018. On top of that, Kuo indicates that iPhone X shipments will grow in the subsequent quarter, which would roughly correspond to the second quarter of Apple's fiscal year 2018.

Now, iPhone X won't make up the entirety of Apple's iPhone shipments during Apple's fiscal second quarter; Apple is still selling the iPhone 6s, iPhone 7, and iPhone 8 families of smartphones as well, and it's likely that shipments of the iPhone 8 devices will fall substantially quarter over quarter as the iPhone X shipments ramp up (one report claims that Apple plans to cut iPhone 8-series production by nearly 50% once the iPhone X launches).

But the point is this: The second quarter of Apple's fiscal year 2018 could see a much-lower-than-typical sequential drop in revenue.

What does this mean for Apple?

At first blush, it might seem like this is an unequivocal win for Apple. If Apple's iPhone shipments during its first fiscal quarter hit the levels that we've seen during the same period in prior years, then Apple could be on track to a significant increase in total iPhone unit shipments during fiscal year 2018.

However, that's by no means a given.

Apple might ultimately project lower-than-typical revenue for the first fiscal quarter of 2018 driven by iPhone X supply constraints, but then it might also tell investors that it expects a far lower sequential drop in revenue for the second fiscal quarter of the year.

Apple might even project a sequential increase in revenue for the second fiscal quarter of 2018, thanks to an increased shipment mix of iPhone X (which starts at $999 and goes to $1149) relative to what it'll likely see during the first fiscal quarter (which could still have significant shipments of cheaper iPhone 8 and iPhone 8 Plus devices).

If I had to guess, though, I'd bet on Apple ultimately enjoying significant iPhone unit and revenue growth in the current fiscal year. However, we should know more when Apple reports its financial results on Nov. 2.

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.
$138.93 (1.62%) $2.21

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

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.