Apple (NASDAQ:AAPL) is having an awfully hard time ramping production of its forthcoming iPhone X, the 10th anniversary edition of its flagship product. There has been a nonstop string of reports regarding production challenges, complemented by dire estimates on the supply side of the equation. One of the primary bottlenecks has been the device's TrueDepth camera system, which enables a 3D facial recognition system that Apple calls Face ID.
Earlier this month, The Nikkei Asian Review reported that manufacturers were having difficulty assembling the TrueDepth modules. Apple has notoriously stringent quality requirements that its contract manufacturers must adhere to -- requirements that Apple may be relaxing in order to improve production output.
That pesky dot projector again
Bloomberg published with a must-read scoop this morning, reporting that Apple has "quietly told suppliers they could reduce the accuracy of the face-recognition technology to make it easier to manufacture," citing anonymous sources. Chief Design Officer Jony Ive recently confirmed that Apple has been looking at 3D sensing technology for over five years, which investors could have already deduced from its 2013 acquisition of PrimeSense.
Several of the components that go into TrueDepth are extremely fragile, including the vertical-cavity surface-emitting laser (VCSEL) sensor that is part of the dot projector, as well as the glass lens that sits in front of the sensor. There's not much room for error, since TrueDepth modules must fit within a very small space (the controversial "notch") that's mere millimeters deep, according to the report. Acceptable tolerances are measured in microns.
Dot projector yield rates were supposedly as low as 20% not long ago, and manufacturers have slowed down production rates in order to assemble the modules more accurately. Manufacturers have now improved dot projector yields to around 50%. By relaxing TrueDepth specifications, Apple is hoping to improve production rates since more units can pass quality control requirements.
Apple fires back
In a rare move, the company has fired back against the report. Apple provided MacRumors with the following statement:
Customer excitement for iPhone X and Face ID has been incredible, and we can't wait for customers to get their hands on it starting Friday, November 3. Face ID is a powerful and secure authentication system that's incredibly easy and intuitive to use. The quality and accuracy of Face ID haven't changed. It continues to be 1 in a million probability of a random person unlocking your iPhone with Face ID.
Bloomberg's claim that Apple has reduced the accuracy spec for Face ID is completely false and we expect Face ID to be the new gold standard for facial authentication.
Apple doesn't typically respond to press reports (positive or negative), but it prides itself on the quality of its products, which is the result of the extremely high requirements it imposes on contract manufacturers. The last thing Apple wants is a perception among mainstream consumers that it has compromised on quality, even if the supply chain situation is very complex and challenging.
Regardless, one thing seems clear: iPhone X supply is going to be terrible this quarter.
Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.