For Apple, surprise hunger for big phones leaves money on table

EghtesadOnline: Apple Inc 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.

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26 October 2016

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 told analysts on Tuesday. 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," Reuters quoted Cook as saying.

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

Apple issued a conservative outlook on margins for the holiday quarter, 38 percent to 38.5 percent, versus expectations of nearly 39 percent, said Mariann Montagne, 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 IDC analyst John Jackson. "Those are dollars not in your hands.”

The Cupertino, California-based company unveiled its newest iPhones on Sept. 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 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 Co Ltd, which recently recalled its own large format phone, the Galaxy Note 7, after a number of them caught fire.

Apple Chief Financial Officer Luca Maestri told Reuters in an interview it was "impossible to know" the effect of Samsung halting production of the Note 7 earlier 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, 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."