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Costly Supply Chain Delays in iPhone 8

Posted by Jenina Borromeo | August 22, 2017

To mark the 10th anniversary of the iPhone this year, Apple is set to launch its flagship iPhone 8 along with the iPhone 7 and iPhone 7 Plus. The highly anticipated iPhone 8 is rumored to feature a bezel-less design, stainless steel, glass chassis, a 5.8-inch OLED display, dual rear cameras, and a new 3D facial scanner, among others.

However, one month shy of its expected launch in September, reports claim that Apple is facing production issues regarding the iPhone 8 and its release could be delayed by three to four weeks.

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Foxconn, an electronics manufacturing company, is currently in charge of 95% of Apple’s OLED iPhone orders, and a small volume of 4.7-inch and 5.5-inch orders. Meanwhile, Pegraton will handle 65% of iPhone 7 orders and Wistron will manufacture 5.5-inch iPhone 7 Plus units. According to reports, production of these new handsets could start in August, which is already between one to two months later than the regular mass production. This means that the launch of the iPhone 8 could also be delayed.

According to reports, analysts that recently traveled to China to speak with suppliers found that Apple was “in a panic” to secure the components needed for the iPhone 8s Touch ID and 3D facial recognition features. Industry sources also said that iPhone shipments are being held back by supply of OLED panels and yield rates at assembly as output of the 5.8-inch panel is heavily constrained. In addition, Apple is also reportedly having issues in pairing the software of the wireless charging system and the 3D facial recognition system with iOS. Another report claimed that a flexible motherboard associated with controlling the OLED screen could be the problem as one of three suppliers of the board is having issues with quantity, quality, and profitability.

With regards to the Touch ID feature, the fingerprint sensor would supposedly be integrated into the device’s screen instead of added to a physical button. However, rumors claim that Apple is struggling to place the sensor underneath the glass screen. Analysts noted that Apple only has a couple of weeks to solve this issue or its earnings estimates could be at risk. Some reports also said that Apple has until August to either replace orders for chips for the Touch ID sensors, remove this feature, or significantly delay the release of the iPhone 8. If this fingerprint problem is solved and orders for the component are placed before August, the company would likely be able to reach volume production in late October or early November. If these issues remain unresolved, Apple may choose to launch iPhone 8 with these major features disabled. Such features could be added after launch via a software update.

Apple is expected to launch the new handsets through a media event usually held in September. Some reports indicated that only three to four million iPhone devices will be ready to ship by September this year as it appears difficult for the company to ship the expected 50-60 million new iPhones. However, a launch with just 4 million units for the month would be very tense since Apple usually sells over 10 million iPhones in its opening weekend alone.

While rumors still circle this flagship device, forecasts on Apple’s iPhone shipments and sales have already been impacted. Analysts earlier anticipated total shipments of iPhone at 219.1 million for the 2017 fiscal year. However, supply chain problems prompted Apple to cut their iPhone sales forecasts to 208.1 million for this period. BofAML analysts also cut their forecasts on iPhone shipments for the September and December quarters by 11 million and 6 million, respectively. Other analysts already expect that the iPhone 8 won’t have any positive impact on the company’s September quarter.

Despite the anticipation and uncertainties brought in by these rumored features and issues on production, Apple has yet to make a statement on the iPhone 8’s problems or its expected launch date.

According to a report, Apple has bought extra equipment worth tens of millions of dollars to assist in the production of critical components of the device. The production equipment in question is for the rigid-flex printed circuit board, a key component of the iPhone 8. Since Apple does not have its own production plant, the company is leasing this equipment to suppliers to ensure that the components are manufactured on time. However, one of the three suppliers that Apple planned to secure the equipment from recently pulled out of the agreement. As a result, Apple is now looking to replace this supplier from Taiwan with another from South Korea. With the purchase and lease of the equipment, the company is reportedly hoping to hasten the production while supporting its remaining two suppliers, both from South Korea.

With regards to iPhone assembly plants, Foxconn, Pegatron, and Wistron have already recruited en masse to handle the production demand. Recent reports noted that Zhengzhou Foxconn has already started trial production of the iPhone 8, iPhone 7s, and iPhone 7s Plus, at about 200 units per day. This latest report quoted from sources from Foxconn is already expelling rumors that the launch of the flagship 2017 iPhone will be delayed.

However, everything still remains uncertain until the actual launch of the devices. Amidst these rumors, iPhone 8 continues to cause a stir in the smartphone market, remaining a hot topic among customers, manufacturers, suppliers, and even competitors as its launch nears. Chip suppliers for non-Apple devices are already witnessing a slowdown in orders and shipments this year as smartphone makers are still awaiting what the new Apple devices will offer.