Image source: Apple.
As Apple's (AAPL +1.05%) important holiday quarter draws closer, Apple's newest iPhone is still supply constrained. Does this mean iPhone deliveries next quarter could disappoint? Not necessarily.
Supply constrained
The first deliveries of Apple's newest iPhone lineup -- the iPhone 7 and 7 Plus -- were handed over on Sept. 16. With deliveries starting about a week earlier than usual, some investors may have reasoned that this early production schedule could give Apple a good shot at minimizing supply constraints as the company went into its first fiscal quarter of 2017, which starts on Oct. 1. But iPhone 7 supply remains severely constrained just a couple of days before the start of Q1.
It only takes a few minutes of viewing different iPhone 7 models on Apple's website to realize just how backed up the company is. A fully stocked iPhone delivers the following day after an order. But shipping estimates for varying iPhone 7 models range from two weeks to over a month. An AT&T iPhone 7 with 32GB of storage, for instance, ships in two to three weeks. And, on the other end of the spectrum, a jet-black iPhone 7 Plus with 256GB of storage ships in November.
This is normal
It's not clear whether higher-than-expected demand, severe supply challenges, or a combination of both are the reason for the iPhone 7's constrained availability. Reports from Sprint and T-Mobile stating that iPhone 7 preorders were five times higher than the 6s launch and four times higher than the iPhone 6 launch, respectively, suggest that higher-than-expected demand could be the culprit. But since this is a very limited view into the demand for iPhone 7 and 7 Plus, this shouldn't be trusted as a lead indicator for estimating iPhone 7 demand. Further, it's simply impossible to know how well Apple is actually ramping up supply. Chances are, iPhone 7 supply constraints can be credited to both higher-than-expected demand and supply challenges.
Fortunately for Apple investors, the company has dealt with problems like this before. This is far from the first time the tech giant has come up short of iPhone demand in the months after launch. Apple's iPhone 6 supply constraints two years ago, for example, persisted through the entire first fiscal quarter and even lasted into the company's fiscal second quarter. And just about every iPhone launch has faced supply constraints for certain models for several months.
iPhone 7. Image source: Apple.
Despite many instances of supply constraints in the months following a new iPhone launch, iPhone revenue has set a new record every holiday quarter. Put simply, Apple knows a thing or two about addressing supply constraints.
There's one particular reason for investors to have confidence in Apple's ability to ramp-up production of iPhone 7 this year: The company's initial launch for the iPhone spanned far more countries than usual. On Sept. 16, Apple launched iPhone 7 and 7 Plus in 29 markets. Then the company followed-up with a launch in 29 more markets by Sept. 23. Comparatively, iPhone 6s was first launched in just 12 markets; and it wasn't even until 10 days into October than Apple started bringing the iPhone to additional markets. Therefore, Apple's comparatively more aggressive global rollout for its iPhone 7 this year suggests management is apparently somewhat confident in its ability to ramp up iPhone production.
Investors, of course, should keep in mind that participating in guesswork related to iPhone sales based on shipping estimates or even supply rumors is tricky business. But severely limited iPhone 7 availability at least suggests the company doesn't have a demand problem on its hands.
