In a new research note from respected KGI Securities analyst Ming-Chi Kuo, summarized by MacRumors, Kuo says that Apple's (NASDAQ: AAPL) iPhone X production difficulties appear on track to be resolved.
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In the note, Kuo said that several component challenges face Apple and its suppliers. Among the affected components are the flexible printed circuit board (PCB) for the antenna, the flex PCB for the wide-angle lens, and the dot projector that's part of Apple's TrueDepth front-facing camera system, which is used to enable facial recognition.
All told, Kuo is cutting his iPhone X shipment estimates for the fourth quarter of this year to between 25 million and 30 million units, a five-million-unit reduction from his prior estimates. He did say, though, that shipments will "pick up markedly" in the following quarter.
Let's look at what this means for Apple's business.
An unusually strong second fiscal quarter
Apple typically unveils new iPhones in September and begins shipping all new models several weeks later. This usually means that Apple sees a small quantity of new iPhone shipments during its fourth fiscal quarter (which ends in September), with peak new iPhone shipments happening in the first fiscal quarter of the following year.
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This year, though, it looks like the pattern in Apple's business will be different.
Apple unveiled three new iPhones this year, but the flagship model -- the iPhone X -- won't go on sale until Nov. 3, which is solidly within the first quarter of Apple's fiscal year 2018. On top of that, Kuo indicates that iPhone X shipments will grow in the subsequent quarter, which would roughly correspond to the second quarter of Apple's fiscal year 2018.
Now, iPhone X won't make up the entirety of Apple's iPhone shipments during Apple's fiscal second quarter; Apple is still selling the iPhone 6s, iPhone 7, and iPhone 8 families of smartphones as well, and it's likely that shipments of the iPhone 8 devices will fall substantially quarter over quarter as the iPhone X shipments ramp up (one report claims that Apple plans to cut iPhone 8-series production by nearly 50% once the iPhone X launches).
But the point is this: The second quarter of Apple's fiscal year 2018 could see a much-lower-than-typical sequential drop in revenue.
What does this mean for Apple?
At first blush, it might seem like this is an unequivocal win for Apple. If Apple's iPhone shipments during its first fiscal quarter hit the levels that we've seen during the same period in prior years, then Apple could be on track to a significant increase in total iPhone unit shipments during fiscal year 2018.
However, that's by no means a given.
Apple might ultimately project lower-than-typical revenue for the first fiscal quarter of 2018 driven by iPhone X supply constraints, but then it might also tell investors that it expects a far lower sequential drop in revenue for the second fiscal quarter of the year.
Apple might even project a sequential increase in revenue for the second fiscal quarter of 2018, thanks to an increased shipment mix of iPhone X (which starts at $999 and goes to $1149) relative to what it'll likely see during the first fiscal quarter (which could still have significant shipments of cheaper iPhone 8 and iPhone 8 Plus devices).
If I had to guess, though, I'd bet on Apple ultimately enjoying significant iPhone unit and revenue growth in the current fiscal year. However, we should know more when Apple reports its financial results on Nov. 2.
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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.