The 10th-anniversary edition of the iPhone is all but expected to be delayed at this point, Wells Fargo Securities senior analyst Maynard Um wrote in a note to investors on Monday. "It's noteworthy that this would be Apple's first iPhone delay, which would be highly atypical and possibly reflect increasing difficulty in delivering innovation and/or slipping execution," he wrote.
While many investors say the delay doesn't matter because it will just push off the earnings growth until the next quarter, it's not that simple, he argued. "Deflating F17 (fiscal 2017) and inflating F18 doesn't create incremental value but merely redistributes demand/earnings from one FY (fiscal year) to another," he explained.
Apple's fiscal 2017 runs from September 25, 2016 to September 30, 2017. Since Apple may reportedly push off the iPhone launch until November or December, that means the 2017 fourth quarter that ends in September won't get the boost in iPhone sales that it's come to rely on from releasing a new iPhone in the middle of the month. In addition, the 2018 first quarter sales would also be hurt.
Last year, the iPhone 7 models came out on September 16. For the 2016 fourth quarter ended in September, Apple reported better-than-expected iPhone sales with 45.5 million units sold. Analysts were expecting 44.8 million iPhones sold. "We couldn't be more excited about the customer response to the iPhone 7 and the iPhone 7 Plus," CEO Tim Cook said at the time.
Heading into this year's fourth quarter, Apple's iPhone sales are already on the downtrend as excitement about the iPhone 7 models released nearly a year ago continues to wear off and as customers hold out for the new iPhone model. Apple sold 50.8 million iPhones last quarter, which was a drop from the 51.2 million units sold in the previous quarter. For the typically slower third quarter, analysts are expecting Apple to report 40.8 million devices sold.
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New iPhones are typically released in September. But this year, Apple may delay the launch of its 10th-anniversary edition iPhone until November or December due to supply constraints.
Historically, the slower third quarter iPhone sales are overlooked because the sales get a giant boost in the fourth quarter when the newest iPhone is released. Um noted that instead of holding out until September for the new iPhone, a number of consumers may now wait until December for the next version, which could weigh on sales through the end of the 2017 financial year. For the 2017 fourth quarter, Wall Street is expecting Apple to sell 46.2 million iPhones.
But even if Apple gets the iPhone out by December, it's going to have tough comps considering last year's December quarter had an extra week to help bolster sales, Um noted. Apple has also historically struggled to get production to meet demand in the December quarter. Wells Fargo is also concerned about Apple being able to sell an iPhone that's expected to cost $1,099 for the entry level version to people outside of the early adopters, i.e. the Apple fan club. Sustaining demand could be more difficult this year with such a high price tag.
However, not all analysts are downbeat on the new iPhone launch.
Jackdaw Research chief analyst Jan Dawson said he is wary of reports that the iPhone 8 will be delayed. "It's entirely possible we will see delays, but it's really impossible to know for sure at this point," he said. While a big delay would obviously hurt sales for the December quarter, it's not worth speculating at this point since that remains unclear, he added.
Investors should look for Apple's guidance in Tuesday's earnings call for an indication of how many iPhones Apple is expecting to sell in September, Dawson pointed out. If the company is expecting a delay, the guidance will probably by lower than expected, he explained. "It will give us a small sense of what they're expecting in the September quarter, which traditionally includes the first 10 days or so of iPhone sales," he said.
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