We reported in July that Apple had a stressful June getting all the bells and whistles in the 10th Anniversary iPhone working right before taking the phone into mass production. Based on the numbers we heard from Apple on Tuesday, it sounds like Apple engineers got their work done.
In June, Apple engineers were working feverishly to get a variety of new features on Apple’s forthcoming 10th Anniversary iPhone (likely called iPhone 8 or iPhone X) working, a knowledgeable source told me. The problematic features included the wireless (inductive) charging in the new phone, and the 3D sensor on the front of the phone that will be used to identify and authenticate the user. Apple is also said to have been struggling to build a home button underneath the new edge-to-edge OLED screen on the front of the phone.
Numerous reports said that the release of the 10th Anniversary phone could be delayed until much later in the year if the problems persisted. If that were the case, no sales of that device could have been factored into Apple’s September quarter revenue forecast. But it appears they were.
Apple said it expects revenues of between $49 billion and $52 billion for the September quarter. Those are very big numbers. Wall Street was happy; Apple stock price went up after hours.
The music ringing in analysts’ ears said, “An iPhone supercycle is about to begin.” In other words, the magical days of the iPhone 6 are about to return, with lots of consumers throwing down the plastic to get in on the next chapter of the iPhone. Indeed, Apple’s estimate approached the $51.5 billion in quarterly earnings reached at the height of those heady days in September 2015.
More specifically, Apple’s forecast meant two things to Wall Street analysts: Apple will deliver all three of its new phones on time (that is, in September), and demand for the new phones will be really high. Apple believes lots of people have held off on upgrading their phones until they have a chance to buy one of the new phones announced this fall. The phones will (very likely) include the iPhone 7s and 7s Plus, and the fancy (and expensive) new 10th Anniversary iPhone.
Morgan Stanley released an analyst note this morning, saying:
Following strong results and guidance at AAPL last night, MS Research IT Hardware Analyst Katy Huberty sees a clear the path for AAPL shares to outperform in the early innings of the iPhone supercycle. Her FY18 estimates remain well ahead of consensus as she sees faster upgrades, increased switchers, and ecosystem benefits like accelerating services growth.
Other analysts released similar notes. Analysts at RBC, Guggenheim, J.P. Morgan, UBS, Rosenblatt Securities, and Wells Fargo moved their stock price targets for Apple upwards, according to Apple Insider.
But there’s a caveat (there’s always a caveat). Even if Apple delivers all of the new iPhones on time in September, that doesn’t necessarily mean it worked out all the technical problems it struggled with in June. It’s possible (not probable) that Apple would build significant features into the hardware of the 10th Anniversary phone, but leave them disabled until it has the software working reliably.
Nobody was thinking about that Tuesday. On earnings day, all the attention is usually on the actual sales numbers for the quarter. But Apple’s June-ending quarterly numbers seemed like an aside. The company had an okay quarter, with solid iPhone sales and some some surprisingly good results in the iPad, Watch, Mac, and Services businesses.
The forecast for next quarter has set the stage for a big iPhone launch coming up this fall. Don’t expect any easing of the iPhone hype before then.