After reports the iPhone 7 was outselling the iPhone 8 sent Apple’s stock lower on Wednesday, more troubling news about the company’s complication-plagued supply chain for the iPhone X, its special tenth anniversary model, emerged this morning courtesy of Nikkei, which is reporting the company has halved its planned shipments for the number of iPhone X’s it will sell by year’s end to 20 million.
Initial shipments of Apple's highly anticipated iPhone X are expected to total around 20 million units, only half the planned amount for this year, The Nikkei has learned. The reduction stems from the California-based company's struggles to solve technical issues with components supporting the model's new face authentication feature.
The X is the first iPhone to adopt an organic light-emitting diode display and do away with the home button. At the beginning of mass production, defects occurred in the bonding process for the OLED panels, and although the problem was largely resolved around July, problems continued in assembly of the face authentication module. Manufacturers were only able to improve the first pass yield -- the number of good units - toward the end of September.
The iPhone X is currently being produced at a rate of 10 million units per month, but with the sales scheduled to begin on Nov. 3, Apple is likely to only provide 20 million units this year.
Since the market has largely ignored the news, the production troubles could benefit the company by restricting supply at a time when demand for new iPhones appears unusually weak. Last week, Taiwanese media reported Apple had cut its iPhone 8 orders in half as the new iPhone model undersold its older peers, an unusual phenomenon for Apple. Some attributed it to the fact that it appeared fewer Americans were exercising upgrades for their data plans, a two-year cycle that tends to be a major sales driver. Others said users were delaying purchases to wait for the iPhone X. Whatever the reason, early indicators suggested demand was particularly weak in China, which Apple has repeatedly cited as a key growth market.
The iPhone 8 and iPhone 8 Plus accounted for a collective 16% of total U.S. iPhone sales during the third quarter, according to Consumer Intelligence Research Partners, far behind the iPhone 7 and iPhone 7 Plus, which accounted for 43% of sales when they went on sale in September 2017.
The Apple X is expected to open for preorders at midnight Pacific Time Friday. And a survey by brokerage Bernstein suggests that the weaker demand for the iPhone 8 could be related to the fact that the iPhone X is expected to receive substantial, but not exceptional, demand, with about a quarter of the survey’s respondents saying they planned to buy the phone. But if this is accurate, it raises the stakes for Apple to resolve its supply issues quickly, before some buyers, unwilling to wait for the new phone, which is priced to start at a whopping $999, to settle for the iPhone 8 or, worse, a Samsung.
Many of the respondents to the Bernstein survey said that, though they were “excited” about the iPhone X, they didn’t intend to purchase it. However, an overwhelming majority still intend to choose an Apple device. "Consumer loyalty to iPhone remains remarkably strong, despite persistent complaints about high prices and worries about declining innovation, with only 3 percent of respondents stating that their next phone would *not* be an iPhone," Bernstein said.
Most of the production problems involving the iPhone X are related to the phone’s breakthrough dot projector, a component in the 3-D sensor module used for facial recognition, which famously malfunctioned during the phone’s unveiling demonstration last month.
According to Nikkei, Apple is believed to have already started negotiations with other manufacturers over additional production of certain parts, and there is a chance that output volumes could improve rapidly.
The company is expected to confirm details about the early sales of the iPhone 8 when it reports fourth quarter earnings early next month. Despite the bad news, the company’s shares were up slightly in premarket trading, though they remain below an all-time high reached in early September.
And in an ironic twist that might shed some insight on why the Apple 8 hasn’t proven as popular as its predecessors (well, aside from the ‘delayed demand’ theory), Apple co-founder Steve Wozniak said he's not in a hurry to buy the next iPhone, even though he usually rushes to buy one the first day they’re out, CNBC reported.
"I'd rather wait and watch that one. I'm happy with my iPhone 8 — which is the same as the iPhone 7, which is the same as the iPhone 6, to me," Wozniak said, speaking from the sidelines of the Money 20/20 conference.
"For some reason, the iPhone X is going to be the first iPhone I didn't — on day one — upgrade to. But my wife will, so I'll be close enough to see it."
There you have it, folks.