What Apple Is Doing to Meet the Incredible Demand for the New iPhones

Source: Twitter.com/tim_cook
Source: Twitter.com/tim_cook

If you’re worried about being able to find an iPhone 6 or iPhone 6 Plus in time for the holidays, you’re not alone. Apple recently announced that it sold 39.3 million iPhones during the September quarter and according to a transcript of Apple’s fiscal fourth quarter earnings report provided by Seeking Alpha, CEO Tim Cook revealed that “Demand for the new iPhones has been staggering and geographically broad-based markedly higher in every single country where we’ve launched compared to the iPhone 5s a year ago.”

While this overwhelming demand for the iPhone was good news for investors, it was accompanied by some slightly discouraging news for shoppers who are still trying to get their hands on one of the new iPhone models.  “It is unclear looking at the data when supply will catch up with demand,” observed Cook during the earnings call, according to Seeking Alpha. “And so I don’t want to leave you with a view that we know that we’re going to get to a supply-demand balance on both of the new products this quarter because I don’t know that at this point.”

Fortunately, the latest rumors out of Apple’s Asian supply chain suggest that the company is taking several drastic steps to meet the overwhelming consumer demand for both of its large-screen iPhone models. According to “sources from the upstream supply chain” cited by the Taiwan-based DigiTimes, Apple has boosted iPhone 6 orders for Pegatron and the supplier is now expected to ship approximately 25 million units of the 4.7-inch model by the year’s end. Another 25 million units should be delivered by Foxconn by the end of 2014, for a shipment total of 50 million iPhone 6 units. As seen in the photo above that was tweeted by Cook, the Apple CEO is currently on a tour of China that included a visit to a Foxconn factory in in Zhengzhou. However, it is unknown if his visit was related to the rumored production boost.

WANG ZHAO/AFP/Getty Images
WANG ZHAO/AFP/Getty Images

While Apple didn’t break down its iPhone sales by model type, it should be noted that supply issues with the 5.5-inch iPhone 6 Plus model were likely exacerbated when the devices went on sale in China on October 17. Several industry watchers have noted the increasing popularity of phablet-sized smartphones in the Greater China region, so it is likely that the larger iPhone 6 Plus model is especially in demand there. According to market research firm Canalys, 39 percent of the smartphones sold in China during the first quarter of 2014 had displays that were five inches or larger, compared to 34 percent in the worldwide market. The greater popularity of the iPhone 6 Plus model in China was also confirmed by DigiTimes’ supply chain sources, who claimed that “consumers in Asia Pacific countries such as China, are more fond of the iPhone 6 Plus and the supply ratio of the iPhone 6 and the iPhone 6 Plus in the region is about 55:45 currently.”

This may be why Apple is also rumored to be taking the unprecedented step of offering one of its primary suppliers extra money as an incentive to produce more iPhone 6 Plus models. According to the usual “sources from the upstream supply chain” cited by DigiTimes, Apple is considering boosting its iPhone 6 Plus payment by 20 to 25 percent.

“Foxconn is estimated to be charging US$20 for each iPhone 6 Plus made,” stated DigiTimes’ sources. “If the rumors are true, the fee would rise to US$24-25.” However, this would only be a temporary measure until supplies of the iPhone 6 Plus were brought up to standard inventory levels. At that point, payments would revert to the original amount.

While the latter move would eat into Apple’s famously high profit margins, the company may consider it a small price to pay in the short term for drawing more users into its ecosystem for the long term. Obviously, making slightly less profit per unit is better than making no profit at all due to a lack of inventory. While supply chain rumors should always be taken with a grain of salt, it should be noted that Cook referred to the company’s robust guidance for the next quarter when asked about iPhone inventory issues by Goldman Sachs analyst Bill Shope during the recent earnings call.

“It’s very difficult to gauge demand without first achieving finding the balance and it’s clear that as of today, and certainly as of the end of the quarter where you’re looking at the data, we’re not nearly, we’re not close, we’re not on the same plan[et],” said Cook, according to Seeking Alpha. “And — but that said, I am really confident that supply is going to be great and that’s the reason you see incredibly strong guidance that we’re giving from $63.5 billion to $66.5 billion.” In other words, it looks like there is a good chance that everyone who wants to buy an iPhone 6 or an iPhone 6 Plus this holiday shopping season should be able to find one.

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

Want more great content like this? Sign up here to receive the best of Cheat Sheet delivered daily. No spam; just tailored content straight to your inbox.