Apple Inc. (NASDAQ:AAPL) may not be able to put the iPhone 7 release date before the end of the current quarter, if rumors emerging on the back of the firm’s earnings report are believed. Apple revealed guidance for the third quarter of the year that showed iPhone sales would likely come in lower than expected.
Apple usually launches its new iPhone on the second-to-last Friday of September. The device then goes up for sale one week later. This year it was expected that the firm could launch the iPhone on September 18, and start to sell the device on September 25. The firm’s earnings report puts the iPhone 7 release date in doubt.
Apple earnings don’t reflect iPhone 7 release date
When the iPhone 6 was release Apple sold 10 million units of the device. Wall Street would expect that number to turn lower on the release date of the iPhone 7, but there wouldn’t likely be a massive collapse in sales. 10 million iPhones is worth about $7B in sales to Apple.
When Tim Cook and his team guided for earnings in the three months through September, they counted for revenue of $49-50B. Wall Street was looking for the firm to bring in more than $51B in sales in the three months. That shortfall may be caused by lower overall sales, or it might be down to sales over the iPhone 7 release date weekend that aren’t going to happen.
This is where it gets complex. Apple (NASDAQ:AAPL) records revenue for iPhones that are shipped, rather than sold. The majority of iPhone sales made on opening weekend are ordered online rather than sold in store,.
That means it’s unlikely that Apple recorded 10 million shipments of the iPhone 6 for its third quarter of 2014. The exact number it did record is not easy to guess, but it makes for a discount on the estimate of $7B in revenue the firm took in on opening weekend.
If Apple got half of those iPhones to users before the end of the quarter, that makes for around $3.5B in sales recorded in its report. Assuming that the iPhone 7 release date will bring lower sales than the iPhone 6, the $1-$2B shortfall in guidance may reflect a problem with the forecasted date.
The bottom line is that there is a $2B gap between the sales that Apple expects and the sales that Wall Street is looking for. That gap could be explained in many ways, but the lack of any concrete info on the iPhone 7 release date means that a change of that date inside Apple could account for the difference.
iPhone 7 release date in doubt
The weight behind the September 18 iPhone 7 release date doesn’t hold up to much scrutiny. It’s based on what Apple has done in the past rather than what the firm is doing right now.
With Apple’s guidance for the fourth quarter looking low, it’s possible that the firm will put off the release date of the iPhone 7, and that will cause lower sales in the fourth quarter.
iPhone 7 hardware delays
Why would Apple decide to delay the release date of the iPhone 7? The answer may lie with the device it most resembles. The Apple Watch saw serious delays in its shipping times because of the failure of key hardware. Apple (NASDAQ:AAPL) will want to avoid that this time around, and the firm may decide to delay the iPhone 7 release date in order to make sure that the device is ready to launch.
The Force Touch module, which is key among the rumored iPhone 7 specs, caused delays for the Apple Watch on its release. Apple is going to put that tech inside the next release of its smart phone, and it might wreak havoc on the release date.
There are many reasons, other than Force Touch, that could cause a delay in the iPhone 7 release date. Earlier this year it was reported that Samsung and other chip-makers were having issues with the A9 chip for the device.
Ming Chi Kuo, of KGI Securities said in an April report that problems in the supply line could delay the release date of the iPhone 7. Mr. Kuo is the voice that called Apple on its Force touch problems before anyone else, and he has an in depth knowledge of the firm’s supply line.
Apple delays iPhone 7 shipments
If Apple doesn’t delay the iPhone 7 release date, it may delay shipping units of the phone to buyers. That’s what it did with the Apple Watch. Though that turned into something of a PR problem for the firm, it may be the only option for Tim Cook and his team if they want to set the release date on September 18.
Apple recognizes sales from iPhones that are shipped. That means that the shortfall on the earnings report could relate to slower shipping rather than an iPhone 7 release date that comes in later than thought.
If the iPhone 7 release date comes in September as planned, there might be trouble getting enough units of the device to buyers before the end of the month. There is always tight iPhone supply on release, but this time might be different.
iPhone 7 sales slow
The low guidance from CFO Luca Maestri, and the rest of the finance team at Apple, might reveal a more simple trend. Demand for the iPhone 7 might not be up to scratch, and the firm may suffer for it. Perhaps the new smart phone will be ready to ship on September 25 but it won’t sell anything like the 10m units that the iPhone 6 managed.
That appears to be the thesis on much of Wall Street right now. Sherri Scribner of Deutsche Bank says that though Apple (NASDAQ:AAPL) will sell 250m iPhones in the 2015 fiscal year, Apple will not get near that number in 2016. She says “we expect iPhone’s growth to underperform the overall market’s growth as we anniversary the iPhone 6 launch.”
Apple Inc. guidance for the three months through September is low, and there is more than one way to analyze that. The firm might put off the iPhone 7 release date, or it may see slow shipping on the launch of the device.
On the other hand, Wall Street might be right. Apple might just not see the same kind of demand from the iPhone 7 as it saw from the last version of its smart phone. Though Tim Cook says that things in China have not changed, he might be wrong.
After the iPhone 6, phone lovers are wondering what Apple could do to make the iPhone 7 better, and they may not be willing to splash out on a next-gen model. More hopeful traders will be betting on a delay in the iPhone 7 release date, even if it means getting their hands on the device a couple of weeks late.