In a fresh report, DIGITIMES says that manufacturing yield rates for some of the parts that make up Apple‘s (NASDAQ: AAPL) hot new Phone X “have improved and become more stable.”
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Manufacturing yield rates refer to the percentage of the components produced that are good enough to use in shipping products; the higher the yield rates, the more components can be built with a given amount of manufacturing capacity.
Because of these improving component yield rates, according to DIGITIMES, sources in Apple’s supply chain say that iPhone X shipments “are set to grow substantially after October.”
Indeed, those same sources tell DIGITIMES that “shipments of the device have increased gradually and will meet Apple’s demand ahead of the Christmas and New Year’s holidays.”
That seems to be good news, especially for those hoping to get their hands on the iPhone X within a reasonable amount of time.
Investors and prospective iPhone X buyers alike should also be aware, though, that it takes some time for components to be assembled into finished devices. Thus, DIGITIMES’ sources say that demand for the iPhone X is unlikely to be completely met (or, put another way, supply and demand for the device aren’t likely to come into balance) until the first quarter of 2018.
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What this means for Apple’s business
The earlier an iPhone is in its product cycle, the more desirable it is. This is due to a couple of factors.
First, when a new iPhone is released, the next one is still about a year away, so potential customers are less likely to want to wait for a new model.
As time passes, and as the rumor mill churns out information about what Apple has in store for next year’s iPhones, it becomes increasingly tempting for customers to simply wait for the next iPhone to launch.
That’s not exactly terrible for Apple, since it’ll presumably get a sale at some point down the line, but investors are probably much happier with one that happened this year than a sale that might happen next year, subject to a large slate of unknown factors.
Beyond that, a new iPhone is most competitive right at launch and becomes less competitive the longer it’s on the market. Indeed, the longer an iPhone is in the market, the higher the odds are that one of Apple’s many competitors in the smartphone market will have released phones that mimic some, if not all, of the signature features of the latest iPhone.
Those companies can not only copy Apple’s coolest features, but they can also combine them with new features of their own invention, further increasing the competitive pressure on Apple’s products.
So, the greater Apple’s ability to satisfy the initial demand for its latest iPhones, the better it is for its iPhone business.
If DIGITIMES is right that Apple won’t have supply/demand balance for the iPhone X until the first quarter of 2018, then that’s clearly not ideal, but it won’t exactly give Apple’s competition a gaping window of opportunity to strike, either.
So, I continue to expect that the iPhone X will do quite well for Apple, helping to boost iPhone average selling prices, revenue, and ultimately profits over the course of the coming fiscal year.
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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.