iPhone's Summer Production Glitches Create Holiday Jitters

By Yoko Kubota in Tokyo, Tripp Mickle in San Francisco and Takashi Mochizuki in TokyoFeaturesDow Jones Newswires

Apple Inc.'s new iPhone, which is expected to be unveiled Tuesday, was plagued by production glitches early in the manufacturing process this summer, according to people familiar with the situation, which could result in extended supply shortfalls and shipping delays when customers start ordering the device later this month.

New iPhones are typically in short supply when first released. But if shortfalls of the new phone extend beyond the initial sales period, which is expected to begin September 22, they could weaken analysts' and investors' projections for sales in the crucial holiday period.

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The production glitches led to a setback of about a month in the manufacturing timetable. Foxconn Technology Group, the Apple contractor that assembles iPhones, has been ramping up production at its manufacturing complex in Zhengzhou, China. The company is paying bonuses to employees who can help bring new hires on board at its Zhengzhou plant, which Foxconn said in June employs about 250,000 people.

Apple and Foxconn declined to comment.

There are big expectations for the new iPhone, informally dubbed the iPhone 8 or iPhone X by industry watchers. Investors, betting the new phone will rejuvenate Apple's sales after a recent slump, have pushed Apple's share price to record highs in recent months.

The new device is expected to have a base price near $1,000 -- a significant premium over existing models -- in part because of more expensive components. Analysts' forecasts for initial shipments vary widely, with some projecting as many as five million units shipped in the last week or so of September.

Adding to the complexity of estimating demand for the new phone, Apple also is expected to release updates to its iPhone 7 and iPhone 7 Plus. It said last month that it expects total revenue of $49 billion to $52 billion for the quarter ending Sept. 30, figures that exceeded some analysts' estimates.

The production delays earlier this summer stemmed from Apple's decision to build new phones using organic light-emitting diode (OLED) screens similar to those used by rival Samsung Electronics Co.

At the same time, Apple as previously reported decided to ditch the physical home button at the bottom of the home screen that contains fingerprint sensors for unlocking the device. Apple tried to embed the Touch ID function, or fingerprint scanner, in the new display, which proved difficult, the people familiar with the process said.

As deadlines approached, Apple eventually abandoned the fingerprint scanner, the people said, and users will unlock the phone using either an old-fashioned password or what is expected to be a new facial-recognition feature.

Even so, precious time was lost and production was put back by about a month, according to people familiar with the situation.

Apple and its suppliers also ran into trouble manufacturing the OLED displays. The display modules are being produced in Vietnam by an affiliate of Samsung Electronics. Unlike the OLED display module in Samsung's own smartphones, in which the display and touch panel are integrated, iPhone's display module has the touch panel outside of the display, according to a person familiar with the technology.

The iPhone manufacturing process requires more steps and more layers of adhesive and protective film than are involved in Samsung's manufacturing process, the person familiar with the process said, creating a greater risk of manufacturing error.

A spokesman at Samsung Display, which operates the Vietnam affiliate, declined to comment.

Apple has faced supply shortfalls with each new iPhone released since 2008. The last time Apple changed the iPhone's appearance was in 2014 -- and Foxconn, formally known as Hon Hai Precision Industry Co., struggled then with low output because of display manufacturing issues.

--Yang Jie in Beijing and Eun-Young Jeong in Seoul contributed to this article.

(END) Dow Jones Newswires

September 07, 2017 12:42 ET (16:42 GMT)