According to the report from J.P. Morgan is reducing its prediction for shipments of the upcoming flagship device, which it refers to as the “iPhone Pro”, due to what it expects will be “a slower production start for the flagship OLED phone.”
It doesn’t however, think recent reports of delays will cause any material delay for the actual launch of the device apart from perhaps constrained supply as usual in the first month or two.
…we do not believe that Apple’s production schedule is still changing materially with most current delay reports simply dated reverberations of decisions Apple made back in the spring. We expect a small amount of late September EMS output for the Pro model and then ramping production through October with target output levels achieved in late October/early November
But just how many will be available at launch? To reflect a slower start for production of the OLED iPhone model, J.P. Morgan is adjusting its forecast for the device from 9m units for September to ~2m units for September. It notes, however, that it will also increase its Y18 unit forecasts “by about the same amount to reflect time-shifted demand.”
Our total iPhone shipments estimate for FQ4 is now 42.2m, reduced from our prior 49.5m forecast. Our FY18 iPhone shipments estimate is now 270.2m, up from our previous estimate of 262.9m…
The report today from J.P. Morgan also adds to the many recent reports that the new flagship iPhones could debut with a higher average selling price. The firm is once again increasing its expectation for the average selling price by $100 to $1,100, noting that it believes “production costs are slightly higher than we had originally anticipated.”
It also thinks the higher average selling price will be a “critical demand control variable for a new tier of iPhone” and that “Apple’s pricing strategy is likely to be aimed at spreading this replacement cycle over two years given totally new product categories like AR are likely still a few years out.”
Tim Cook’s Expensive Gamble
With a new OLED display, curved glass, new physical design, inductive charging, and a still to be confirmed change in biometric recognition, the iPhone 8 is sitting on the bleeding edge of Apple’s ability to innovate. It’s already expected to be late into Apple Stores compared to historical norms, and the price is set to break $1000 for the base model.
Apple is not a company known for making dramatic changes to its product line. Rather than an iteration of the regular iPhone line, the iPhone 8 should be seen as a brand new category of iPhone. The iPhone 7S and 7S Plus are the conservative ‘next steps’, with the iPhone 8 representing a new way of thinking (an almost ‘Pro’ way of thinking).
That way is not about maximizing volume or delivering an updated package at the same price point for everyone who wants one. The iPhone 8 will be about luxury, about high price, about fashion statements and new technology. Think of the iPhone 8 should be seen as a luxury sports car, rather than a muscle car for the masses.
With a fixed budget for components, manufacturing and incidentals, any innovation has been forced to fit inside a very strict financial window.
Apple knows how many people can afford the upcoming iPhone 7S and iPhone 7S Plus models. By creating a new tier of iPhone where the price is allowed to rise as required, more expensive elements can be included in the package, without disrupting the regular refresh of the line-up. This is the iPhone 8’s role.
New technology is expensive, but also much harder to obtain in sufficient quantity. If Apple wants to put a new component in an iPhone (for example, an improved optical sensor in the camera) then the demands of production on that component are huge. Not only will a significant stockpile of components be required before launch (and we’re talking volumes comfortably reaching ten million units or more), but that rate needs to be maintained for many years.
Using the iPhone 8 for the new technology means the volume of components required at launch will be lower than the traditional flagship iPhone.
Apple is in a unique situation here. When other manufacturers have a hit smartphone, they don’t need to be ready to sell tens of millions of these devices. They have much smaller market shares and a wider portfolio of devices that users can move on to. Samsung is probably the only manufacturer that has a similar problem with its Galaxy S handsets, but unlike Apple it has depth in its portfolio.
By pushing the iPhone 8’s retail debut to later in the year the immediate demand from those on Apple’s Upgrade Program or looking to renew a contract will be met by the iPhone 7S and 7S Plus.
Given the $1000+ price tag on the iPhone 8, the lower volume of units coming from the production line, and the potential for a reduced demand from the massed consumer market who just want ‘a new iPhone’ allows the iPhone 8 to be manufactured in much lower quantities without disturbing Apple’s cash cow.
I want you to pay attention to three things:
The BOM costs are only a fraction of the retail price of the handsets (remember that R&D and all the other myriad costs associated with bringing a product to market aren’t included in this costing — however it’s likely that Apple is making around $250 profit per iPhone)
The whopping cost of the 5.77-inch AMOLED display in the Samsung Galaxy S8 ($85, compared to $39 for the iPhone 7)
That the total BOM and manufacturing cost of the iPhone 7 comes to $220, while the handset retails for $649
Of course all of this means that Apple needs to provide the massed ranks of the faithful with a device that it can comfortably sell in volume, at a sensible price, safe in the knowledge that everything works. That’s why the iPhone 7S and 7S Plus need to make some advances, but not enough to upset the talismanic power of the iPhone 8.
The iterative 7S handsets are expected to be announced at the same event as the iPhone 8, go on sale roughly two weeks after the event, and will not only represent the bulk of new iPhone sales in the fourth calendar quarter, but be the foot soldiers against Samsung’s Galaxy Note 8 phablet.
Much like the aforementioned sports car industry builds a handful of incredibly high-end production models that promote the more reserved mid-range sports cars, Apple will have the high-end iPhone 8 to show off its skills, but in terms of volume and availability, it really needs the main story to be the iPhone 7S and 7S Plus.
New iPhone SE coming in August, iPhone 8 event in October
An interesting claim is coming out from iGeneration this morning. According to a source of theirs, Apple is planning to debut a new iPhone SE later this year at an ‘event’ in August.
The company would then follow up with the flagship iPhone 8 launch later in the year, around October. The fate of the iPhone SE may not be as bleak as it seemed, although this is the only rumor about the product to date …
- iPhone 8 release date reportedly delayed to October, might ship with wireless charging, front-facing 3D camera disabled due to software issues
We have heard many times over that the new iPhone launch may be delayed compared to previous years, although generally people have expected Apple to stick to the same announcement schedule — in essence, early September — even if the device isn’t available for a couple months.
iGeneration also says the new SE model would be even cheaper, starting at 399 euros. The current iPhone SE is priced at 489 euros for a 32 GB model (although it is regularly discounted) and is theoretically due for an update, debuting in March 2016.
However, it’s hard to put much too trust in the claims right now. This is the first time we’ve heard about a new iPhone SE in the pipeline and even iGeneration says that this is a ‘new source’ which means there isn’t a track record of accuracy to consider.
The rumors point to three new phones this year, positioned in the higher-end price brackets with 4.7-inch, 5.5-inch and 5.8-inch displays.
Some elements of iOS 11 also indicate that the 4-inch screen may be on the way out, with Apple pushing towards bold oversized navigational elements that do not really fit in with the smaller screen phones.
It is possible that the iPhone SE line may receive minor hardware tweaks and a price cut as Apple attempts to break into new price-sensitive markets like India, but a fully-fledged hardware revision honestly seems farfetched at this stage. It could simply be a price drop for the exact same hardware, which would explain the lack of supply chain reports about it.