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…
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?