Please ensure Javascript is enabled for purposes of website accessibility

1 Analyst Believes Apple, Inc. Has Overcome iPhone X's Face ID Bottlenecks

By Evan Niu, CFA - Oct 26, 2017 at 7:20PM

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

There will be several data points that investors should watch over the next week to glean insights into the production ramp.

In a matter of hours, Apple (AAPL 1.62%) will start taking pre-orders for its forthcoming iPhone X, ahead of the Nov. 3 launch. The current state of production for the new flagship device remains heavily debated, though. Bloomberg reported yesterday that Apple may have compromised on Face ID accuracy specifications in order to make the TrueDepth camera module easier to assemble, although Apple publicly disputed the account and called the report "completely false."

Rosenblatt Securities analyst Jun Zhang is now weighing in (via Tech Trader Daily).

Side view of iPhone X

iPhone X pre-orders begin at 12:01 a.m. PDT. Image source: Apple.

Word on the Street

According to Zhang's research note to investors, Apple may have already resolved its bottlenecks around 3D-sensing components. Zhang estimates that Foxconn has increased production rates and is currently pumping out 800,000 to 1 million units per week after implementing a 24-hour production schedule. That may not seem like enough, since it translates into about 4 million units per month at the high end and wouldn't be enough to hit the estimated 20 million units for 2017, but keep in mind that the production rate is constantly improving.

Zhang does not seem to believe the story of Apple compromising on Face ID accuracy, adding: "We note that accuracy requirements are still very high and we no longer believe that 3D sensing is the iPhone X production bottleneck." The analyst says Apple may have been able to address the quality issues by replacing components made by Murata with other suppliers', all without sacrificing spec requirements. LG Innotek and Sharp, which assemble the TrueDepth camera modules, are still struggling with yield rates but have reached satisfactory levels so as not to create choke points.

Like KGI Securities analyst Ming-Chi Kuo, Zhang estimates that there may only be 3 million iPhone X units available for the launch -- which is to say the device will be extremely supply constrained.

Keep an eye on these data points over the next week

With pre-orders about to commence, the next data point that investors will be able to use as a very rough proxy will be shipping estimates. How quickly shipping estimates slip, and how severe those delays are, will be a qualitative indication as to Apple's backlog for iPhone X. Based on early indications of supply and demand, investors should expect those shipping timelines to slip quickly.

The most meaningful quantitative data point will come in the form of Apple's guidance for its fiscal first quarter, which it will provide when it reports fiscal fourth-quarter results a week from today on Nov. 2, the day before the iPhone X launches. The production situation is evolving very quickly, and a lot can change in short order. The forecast that the Mac maker provides next week will be absolutely critical as the most direct insight into the production ramp.

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.