Apple (NASDAQ:AAPL) continues to make dramatic progress with ramping production of its new iPhone X flagship. New orders placed through the company's online store are now offering next-day delivery or same-day pickup on almost all models in the U.S., the U.K., and many other countries (though not all of them).
The continued improvement in iPhone X availability further dispels investor fears that persisted throughout much of the year that the device would be severely supply constrained, which would in turn hinder Apple's financial results for the December quarter.
iPhone X supply is improving every day
Longtime Apple analyst Gene Munster noted yesterday that iPhone X supply improved for the second week in a row. Munster also observed a marked improvement at the end of November. It appears that Apple has mostly caught up with demand in several important markets, but keep in mind that full supply-demand balance includes global availability, not just a couple regions. Munster believes that Apple will achieve global supply-demand balance in mid-January.
Global lead times across eight countries had improved to just three days as of yesterday, according to Munster's estimates. However, the improvement to next-day availability wasn't reported until this morning, so supply could be even better than Munster believes.
Confidence in the ramp
While there have been several components that have been pegged as potential bottlenecks, vertical-cavity surface-emitting lasers (VCSELs) are among the most important. Last week, Apple announced a major partnership with one of its VCSEL suppliers, Finisar, that would help Finisar ramp VCSEL production in a new facility in Sherman, Texas.
While this specific plant won't be fully operational until late 2018, Apple did say that it was purchasing 10 times more VCSEL wafers in the fourth quarter than the entire worldwide capacity could have produced a year prior. Finisar did note during its earnings call this month that it reached production volumes of VCSEL arrays late in the fiscal quarter, which ended Oct. 29.
Beyond Finisar, Apple's expectation on how many VCSELs it would purchase this quarter underscores its confidence in the industry's capacity ramp, including other suppliers (Lumentum and possibly II-VI). Put another way, Apple's "10 times" prediction came in mid-December with just a few weeks left in the quarter, meaning it had already purchased a massive amount of VCSELs in the fourth quarter.
VCSEL suppliers ramping faster than expected in the fourth quarter could have paved the way for iPhone X to ramp faster than expected, even if there were some hiccups along the way (Finisar reported delays in August). This all bodes well for Apple hitting its record-breaking guidance for the December quarter, which calls for revenue in the range of $84 billion to $87 billion. Even if Apple hasn't achieved global supply-demand balance quite yet, it looks like the iPhone maker is well on its way.
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 recommends II-VI. The Motley Fool has a disclosure policy.