Rumors of a delay for Apple Inc. (NASDAQ:AAPL) much hyped iPhone 8 have surfaced, just as analysts warn that Apple’s guidance for the June quarter will be weaker-than-expected. KGI analyst Ming-Chi Kuo has reported that mass production of the new iPhone-informally known as the ‘iPhone 8’- will take place in October/ November, two months later than the market had been expecting and that this will leave Apple open to competition from rival Android manufacturers.
Kuo says that the production difficulties are down to the iPhone8’s complex and ‘significant hardware upgrades’ and predicts short-term severe supply shortages for the phone. The iPhone 8- which could cost in excess of $1000- is rumored to feature a 5.8 inch OLED display, larger battery, 3D camera, wireless charging, and bezel-less front with 64 GB or 254 GB options. His analysis is in line with a Digitimes report last week which also suggests an October/ November sales date. Digitimes blames the delay on Apple integrating a custom biometric fingerprint recognition system into the iPhone 8 screen.
Three new launches
In fact, three new iPhones are expected to be launched this year: two iterations of the iPhone 7 as well as the iPhone 8 which is believed to incorporate some of Apple’s most radical iPhone redesigns to mark the 10th anniversary of the first iPhone. One possibility is that the three phones will all be launched together on the same date, but the iPhone 8 will only be available to buy later in the year. The iPhones 5, 6 and 7 have all been released mid-late September.
Why This Is Bad News
Kuo warns that the iPhone8 delay and initial supply shortage will also depress Apple’s sales figures for the year- KGI previously forecast new iPhone shipments of the 7s, 7s Plus and the iPhone 8 of up to 110 million units in the second half of 2017. This estimate has now been slashed to 80-90 million units. For customers looking for cheaper options, Kuo also points out that these iPhone 7 updates will face tough competition from the new full-screen bezel-less designs of rival manufacturers Samsung, Huawei and Xiaomi.
Apple is due to report its earnings for the fiscal second quarter on May 2. The consensus EPS is forecast at $2.00, slightly above the $1.9 EPS in the same period last year.
JP Morgan’s Rod Hall is very confident on Apple’s earnings for the full year due to “unprecedented” demand for the iPhone 8. He believes that there is significant pent-up demand from consumers looking for a brand new type of iPhone. But as a consequence of this demand he believes that guidance from Apple for the June quarter could be much weaker-than-expected as Apple factors in the possibility of customers delaying purchases until the iPhone 8.
Hall, who says Apple could preview the iPhone 8 at the Worldwide Developer’s Conference on June 5, is expecting $44.2 billion revenue for Apple’s third fiscal quarter (vs consensus of $45.7 billion) and GAAP EPPS of $1.53 down from consensus of $1.63 per share. He is also projected Q3 GAAP gross margin of 38.1%.
UBS analyst Steven Milunovich concurs- he is below consensus in the short term (his June quarter estimate comes in at $45.4 billion) but for the full year of 2018 he comes in above consensus. He says that the next few earnings reports are not as important to Apple as the critical test-time for the stock will be following the iPhone 8 release.
However, Macquarie analysts Viktor Shvets and Chetan Seth see more inherent issues with the stock. They are dubious that Apple has the power to continuously disrupt the market unlike “pure disruptor” stocks such as Amazon which they highlight for its constant evolution and breakthrough products.
TipRanks reveals that Apple has a strong buy analyst consensus rating which breaks down into 28 buy, 7 hold and 1 sell ratings published by analysts over the last three months. From the average analyst price target of $154 we can see upside potential for the stock over the next 12 months of just above 7%.