Apple will reportedly pay up to “partially absorb costs” related to stricter quality control in iPhone 5 manufacturing, according to Sterne Agee analyst Shaw Wu. Faced with numerous complaints from early adopters who noticed their handset is far more prone to scratches and nicks which Apple initially attempted to dismiss as “normal” wear and tear, the company is now ready to take a hit on its near-term gross margins to improve production quality of the iPhone 5. Specifically, the analyst projects the iPhone maker’s gross margins to be between 40.5 percent and 41.5 percent versus Wall Street’s consensus between 42 percent and 43 percent…

The analyst also said (via AppleInsider) that Apple’s margins will face challenges from the smaller iPad, which is up for an announcement tomorrow, October 23:

Beyond the iPhone 5, Wu believes that Apple’s margins will also be pushed lower by the anticipated launch of a smaller 7.85-inch iPad.

He expects Apple will sell its so-called “iPad mini” at lower margins than the full-size iPad, at least initially, allowing the company to achieve a lower price point and take on competitors like the Amazon Kindle Fire HD and Google Nexus 7.

Bloomberg earlier reported that stricter quality control will likely lead to a slow down in iPhone 5 production.

The analyst is calling for between 25 million and 26 million iPhones for the September quarter versus Wall Street consensus of 27 million. As for the iPad, Wu has predicted 16.5 million units (Wall Street: 17-18 million) and 4.8 million Macs (Wall Street: 4.7-4.8 million units).

Apple is scheduled to release its fourth-quarter earnings on Thursday, October 25, giving as an indication of iPhone 5 sales amid high demand and production issues that have been plaguing the handset since its September 21 release.

It is interesting that an unnamed Foxconn executive reportedly admitted to the iPhone 5 being “the most difficult device that Foxconn has ever assembled”. Foxconn is the world’s leading contract manufacturer and Apple’s favorite partner which assembles a number of its products in Chinese factories.

Foxconn is making Apple’s newest phone at plants in Zhengzhou, central China, and in Guan Lan, in southern China. The Zhengzhou plant was set up in 2011 so it’s still pretty new to the company.

Apparently, this executive said that “it takes time to learn how to make this new device”, indicating that productivity of its iPhone 5 facilities has been improving “day by day”.

I also think it’s interesting that Samsung, which readily paints Apple in negative light in its advertising, hasn’t yet jumped on the opportunity to ridicule the company over Scuffgate, no?

  • Come on try to be a little more objective… I have seen various videos on the internet in which they were scratching an iPhone 5 with keys and nothing happened (he rubbed the phone and the scratches disappeared). Also my iPhone 5 hasn’t got a single scratch. There is no Scuffgate, on the back side at least. Now the side of the product might have problems if you scratch it with a knife (as I have seen in a video)

    • Lucky you, my iPhone 5 came out of the box with many scracthes on it like the one shown in the picutre

      • @dongiuj

        Yeah mine came with a slight chip out of the the metal just above the speaker. It’s tiny and reeeaaal difficult to see but visible in the right light. Luckily not annoying enough to take it to the apple shop and wait for god knows how long to get a replacement.
        Sorry to hear about yours.

      • Though you can wait a month or 2 and then ask for a replacement in an Apple Store… By this time, the replacement will be immediate…

      • Sorry for you mine arrived scratch-less and I have preserved it well. Why don’t you go to an Apple Store and ask them to replace the back and middle plate? Or a full replace?

    • ^^^pure BS every black iphone 5 i have seen has dings and chips on even the ones in the store

      • Seriously! My black iPhone five has three nicks on it just like that photo. The back is a line on it just shy of an inch; comparable to a sneaker scuff on a polished floor. Very unhappy because I didn’t put any marks on it ad I’ve had it since day one!

      • my black model had a scratch right out of the box.

      • Bro I didn’t insult you and I won’t insult your comment, but it really depends on what you do to your iPhone 5. Do you put it in your pocket along with your wallet? Now, the iPhone in the store are always the worse because a large amount of people uses them carelessly…

  • umm his is a damn lie.. fact is they chose to paint onto to metal and that will usually lead to easy chipping and scratching .. they should have used a darkened metal..

  • Reneiver

    Samsung can’t say shit for scuff gate coz their cheap plastic backings probably scratch even more than the chamfers on iPhone 5.

  • max

    And they say apple pays attention to detail!!! I guess people has come to accept nothing but perfect products from apple cuz of the way the company has projected themselves.