Will Apple Inc.'s Fingerprint Fail Hurt iPhone 8 Sales?

Analyst Andy Hargreaves (via Barron's) recently published a research note discussing his team's findings vis-a-vis the fingerprint scanning functionality that was once rumored to be coming to this year's premium OLED Apple (NASDAQ: AAPL) iPhone.

Spoiler alert: Apple couldn't get it to work.

Per the analyst, who cites "supply chain conversations" for this information, Apple failed to get an "in-display optical fingerprint sensor" to work. "We believe the capacitive-based solution struggled with lamination and performance issues given the thickness of the display," Hargreaves said.

This echoes what both KGI Securities analyst Ming-Chi Kuo said back in July, as well as what user "Foxconninsider" said on Reddit earlier this month (though the latter claimed that Apple's solution was an ultrasonic scanner rather than an optical scanner).

Apple then, according to Hargreaves, tried to embed the fingerprint scanner into the power button (again, echoing what "Foxconninsider" said), but that this solution "struggled with a low recognition rate."

"Without a workaround, we expect Apple to ship the OLED iPhone without a fingerprint sensor and rely on 3D sensing for biometric login and verification," Hargreaves said.

This, the analyst said, leads his team to expect a "negative impact for the upcoming iPhone cycle in terms of mix and units."

To that I say, "Not so fast."

Yes, lack of Touch ID is disappointing, but...

To be clear, Apple's failure to build a viable Touch ID solution for the iPhone 8 reflects poorly on the Touch ID team at Apple; it almost certainly had years to get this technology ready for prime time and the organization just didn't deliver.

Moreover, it's going to be tough for longtime iPhone users to transition away from using Touch ID -- muscle memory can certainly make such paradigm shifts a bit painful.

I think that the new iPhone is going to have so many compelling new features, and it's going to have such a beautiful aesthetic thanks to the full-face display and glass back, that the lack of Touch ID -- assuming, of course, Apple's facial recognition technology works as well as rumored -- just isn't going to be a deal breaker.

Hargreaves talks about both "units" and "mix" being impacted here. Parsing this out, what he seems to suggest is the following:

1. Apple won't sell as many total iPhone models as it would have if it had included a fingerprint scanner on the OLED iPhone; and
2. The reduced demand for the top-end model would mean a lower proportion of higher-priced iPhone models compared to the lower-end iPhone 7s/iPhone 7s Plus, lowering iPhone average selling prices compared to where they would've been otherwise. The lack of Touch ID on the OLED iPhone could also push customers to buy the lower-cost iPhone 7s or iPhone 7s Plus, which will have Touch ID (albeit not embedded in the display), instead.

Obviously, there will be some individuals who pass on the OLED iPhone due to the lack of Touch ID (and, frankly, I wouldn't blame them -- Touch ID is awesome), but I'm not convinced that it'll be a large enough group of individuals to really move the needle for Apple's financial results, especially if the facial recognition technology works well.

I think the OLED iPhone will still sell like crazy during this product cycle, pushing iPhone unit shipments and revenue to new heights.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.