Apple unsure of iPhone 7 holiday supplies as smartphone screen maker LG beats forecasts

The US tech giant may not be able to make enough of its biggest device as Christmas approaches while its South Korean screen maker rides price rise wave.

Apple's new iPhone 7 Plus at the Apple Store at Tokyo's Omotesando shopping district, Japan. The company says it may not make enough of the devices to meet holiday demand. Issei Kato / Reuters

Apple said it was caught off guard by how many people want to buy its biggest smartphone, the iPhone 7 Plus, and the miscalculation may hit profits this holiday season.

The technology leader is not sure it can make as many units of the iPhone 7 Plus as consumers want in time for the Christmas shopping rush, Apple’s chief executive Tim Cook said. It will manage to make enough of the smaller iPhone 7s, though, he said.

Demand was strong “particularly on the iPhone 7 Plus versus our forecast going into the product launch,” Mr Cook said.

The bigger phones bring bigger profits, and Apple’s forecast for thinner than expected margins concerned investors after it reported quarterly earnings.

Apple said it sold 45.51 million iPhones in the three months ended September 24. That beat the average analysts’ estimate of 44.8 million, according to the research firm FactSet StreetAccount.

Revenue fell 9 per cent to US$46.85bn, a touch behind Wall Street targets, according to Reuters. Apple forecast revenue of $76bn to $78bn for the current, holiday-dominated quarter, ahead of the consensus estimate of $75.08bn.

If it hits that estimate, this quarter would be Apple’s biggest on record by sales, ahead of the $75.9bn revenue it posted in the year-ago period.

However, Apple issued a conservative outlook on margins for the holiday quarter, 38 per cent to 38.5 per cent, versus expectations of nearly 39 per cent, said Mariann Montagne, a senior investment analyst and portfolio manager at Gradient Investments.

It was not immediately clear if the smartphone shortage caused the miss.

“You’re not able to get that product into the hands of the person who wants it right here, right now,” said the IDC analyst John Jackson. “Those are dollars not in your hands.”

The California-based company unveiled its newest iPhones on September 7. The 5.5-inch (14 cm) Plus model is the first iPhone to have a dual camera on the back that lets users take better portrait shots and zoom in from further away.

“It’s inherently tough to know how things like new finishes and features are going to affect demand for a new model,” said the analyst Jan Dawson of Jackdaw Research.

Apple is still getting to know how consumer interest varies for larger and smaller phones, having launched two competing sizes only in 2014, he said.

The company also may have underestimated the number of customers it would win from Samsung Electronics , which recently recalled its own large format phone, the Galaxy Note 7, after a number of them caught fire.

The Apple chief financial officer Luca Maestri said it was “impossible to know” the effect of Samsung halting production of the Note 7 this month.

“We cannot fulfill all the demand that is out there right now,” he added.

Speeding up production would be difficult, analysts said. The company cannot contract new suppliers, hire more workers and open factories overnight, said Trip Chowdhry, the managing director of Global Equities Research.

“You can’t just shoot iPhones out of an assembly line at the speed of a bullet,” he said. “Apple does things to perfection. There is no need to rush and create an inferior product the way Samsung did.”

Meanwhile, South Korea’s LG Display said it expects strong fourth-quarter earnings as it reported better than expected July-September operating profit, buoyed by a pickup in panel prices.

LG, which counts Apple and sister firm LG Electronics as customers, had tipped its July-September profits to improve from the second quarter as clients prepared to launch new products such as smartphones.

The world’s top liquid crystal display maker said July-September operating profit was 323 billion won (Dh1.05bn), compared with a Reuters estimate of 307bn won derived from a survey of 11 analysts.

“The upwards trend of panel prices is expected to continue in the fourth quarter due to the growing trends towards large-size panels,” said the LG Display chief financial officer Don Kim.

“In addition, profits in the fourth quarter are anticipated to further improve significantly.”

LG narrowly avoided losses in the first two quarters of the year as sluggish global growth undercut demand for consumer electronics, but analysts say panel prices have been rebounding in the second half as smartphone and television makers place new orders to gear up for the year-end holiday shopping season.

The South Korean firm said third-quarter display shipments in surface area terms rose 9 per cent from the previous quarter, while average selling prices climbed 10 per cent.

Data from IHS shows that panel prices for products such as smartphones, televisions and monitors have been trending higher in recent months, with average prices in certain categories rising more than 10 per cent in October from the previous month.

Revenue for the period fell 6.1 per cent to 6.7 trillion won, compared with a Reuters estimate of 6.4tn won.

* Reuters

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