The tech giant is expected to release new versions of the iPhone 7 and iPhone 7 Plus at its Sept. 12 event, but the iPhone 8, slated to be the highest-end model in the line-up, could be delayed by several months, according to the Wall Street Journal.
The production issues stem from the phone's organic LED screen, produced by an affiliate of Samsung (SSNLF) . As part of its major redesign of the iPhone, Apple chose to omit the physical home button in favor of a more complicated fingerprint scanner, which slowed down the manufacturing process, the Journal reported, citing sources close to the situation.
That roadblock is believed to have pushed back the production timetable by a month. Apple is still planning to remove the home button but is now expected to forego the Touch ID sensor in favor of a new facial recognition feature, similar to the one used in Samsung's Galaxy Note 8.
Shares of Apple were down 0.8% to $159.81 on Friday morning. The stock has risen 38% so far this year, however.
Analysts and investors have expressed concerns about OLED-related production issues for months leading up to the September event, causing some to modestly reduce their expectations for iPhone shipments in the September and December quarters.
In an April note to clients, Drexel Hamilton analyst Brian White said a China-based smartphone supplier indicated that the 5.8-inch iPhone 8 could ship several weeks later than expected, largely due to challenges with the 3D sensing technology. It would likely still arrive in time for the December holiday season, he noted.
"This is not the first time that we have heard about a potential delay with a new iPhone; however, our contact was so emphatic about the delay that we are taking this data point more seriously," White said in April. "Essentially, our contact believes customers will be able to pre-order the new 5.8-inch iPhone 8 along with the 4.7-inch and 5.5-inch iPhones in September; however, the 5.8-inch iPhone 8 will not be available for delivery until several weeks later."
White noted that the source believes that the 5.8-inch, 10th anniversary version will comprise about half of the new iPhone shipments.
It's been several months since these concerns first arose, however, and not everyone is convinced that the production glitches will cause shipment delays. Longtime Apple analyst Gene Munster said in a Wednesday note that he thinks the iPhone 8 launch will be unaffected by previously-reported manufacturing issues.
Updated from 11:55 a.m. with additional analyst comments.
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White, too, said he's now more confident that Apple will be able to ship the iPhone 8 on time. Sales figures for June, July and August have been healthy among most Taiwan supply chain companies, White noted, which seems to indicate that there haven't been production issues. Or if there were, they've been resolved, he added.
"It tells me that there were probably a lot worse issues back in April, but they have made progress and it's not going to be as bad as originally feared," White said in a phone interview.
Additionally, Apple almost always has an imbalance of supply and demand around iPhone releases, White said. This is because supply chain companies can only build a limited number of components quickly enough and in time for the September release date. Historical data shows that supply chain constraints don't typically even out until January -- several months after the September event -- but Apple almost always knows this ahead of time, White said.
The last time Apple had supply chain constraint issues was during the iPhone 6 Plus launch in 2014, which was a "huge" issue, White explained. The iPhone 6 Plus marked a major form factor change from previous models and caused production issues related to its extra large screen size.
"They had a major issue and we're just not seeing that this time," White said. "If we have a normal month of September sales for [supply chain companies]...it's tough to take a number that strong and say 'Hey, you know, the iPhone will be delayed meaningfully.'"
Munster, who is an analyst at Loup Ventures, pointed to iPhone component supplier Finisar's (FNSR - Get Report) fiscal first-quarter results, reported late Thursday. Finisar supplies vertical-cavity, surface-emitting lasers (VCSEL) for Apple, which is a key technology that adds 3D sensing capabilities and powers advanced augmented reality applications. AR is expected to be a central update to the new iPhone models, building off of ARKit, Apple's AR developer platform that was introduced earlier this year.
Finisar said it experienced a delay in customer approval for their VCSEL units (presumably used by Apple) that forced production shipments to October, but that it expects those issues to be solved by the end of next month. The company added that it anticipates shipping "much larger quantities" in January 2018 and the following quarters, Munster noted. Echoing other analysts, he believes the iPhone Pro/iPhone 8 will be the only phone incorporating the advanced 3D sensing technology.
"If Finisar can solve this problem in the upcoming quarter, we do not believe this will affect the iPhone launch," Munster explained.
Another 3D sensing manufacturer, Lumentum (LITE - Get Report) , is expected to supply between 75% and 80% of Apple's VCSEL arrays and said it had booked a $200 million order last quarter. This means that Apple might have a fallback in case Finisar's production issues do, in fact, center around supplying sensors for the iPhone 8.
"With Lumentum shipping everything they can produce, we believe Apple will have a sufficient supply of VCSEL arrays to support initial demand for the iPhone incorporating this technology," Munster said. "However, given how capacity constrained Lumentum is for VCSEL arrays, if Finisar issues extend beyond Oct-17, we do believe it could delay iPhone orders."