Apple caught off guard over large smartphone demand

Kathrin Milic tests the camera on an iPhone 7 in the Apple Store in Covent Garden, London. Photo credit: Yui Mok/PA Wire
Kathrin Milic tests the camera on an iPhone 7 in the Apple Store in Covent Garden, London. Photo credit: Yui Mok/PA Wire
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Technology giant Apple said it was caught off guard by the volume of people wanting to buy its biggest smartphone, the iPhone 7 Plus, and the miscalculation may hit profits over the festive season.

The technology company is not sure it can make as many units of the iPhone 7 Plus as consumers want in time for the Christmas shopping rush, Apple’s chief executive Tim Cook said. It will manage to make enough of the smaller iPhone 7s, though, he added.

Demand was strong “particularly on the iPhone 7 Plus versus our forecast going into the product launch,” Mr Cook said.

The bigger phones bring bigger profits and Apple’s forecast for thinner-than-expected margins concerned investors after it reported quarterly earnings on Tuesday.

Apple issued a conservative outlook on margins for the holiday quarter, 38 per cent to 38.5 per cent, against expectations of nearly 39 per cent, said Mariann Montagne, senior investment analyst and portfolio manager at Gradient Investments.

It was not immediately clear if the smartphone shortage caused the miss.

John Jackson, analyst at IDC, said: “You’re not able to get that product into the hands of the person who wants it right here, right now. Those are dollars not in your hands.”

The California-based company unveiled its newest iPhones on September 7. The 5.5-inch Plus model is the first iPhone to have a dual camera on the back that lets users take better portrait shots and zoom in from further away.

Jan Dawson, analyst at Jackdaw Research, said: “It’s inherently tough to know how things like new finishes and features are going to affect demand for a new model.”

Apple is still getting to know how consumer interest varies for larger and smaller phones, having launched two competing sizes only in 2014.

The company also may have underestimated the number of customers it would win from Samsung, which recently recalled its own large format phone, the Galaxy Note 7, after a number of them caught fire.

Luca Maestri, chief financial officer at Apple, said it was “impossible to know” the effect of Samsung halting production of the Note 7 earlier this month.

“We cannot fulfil all the demand that is out there right now,” he added.

Speeding up production would be difficult, analysts said. The company cannot contract new suppliers, hire more workers and open factories overnight, said Trip Chowdhry, managing director of Global Equities Research.

iPhone sales continue to slow as Apple’s latest financial results revealed a 5 per cent drop in sales when compared to the same quarter of 2015.

The technology giant warned of such a slide in its financial forecasts earlier this year as the smartphone market begins to reach saturation - with most consumers now owning a viable device and upgrading less frequently.

Apple reported total iPhone sales for the three months to September 24 of more than 45.5 million units - up around five million on the last quarter - but still down on the same period last year. The firm’s total revenue for the quarter was £38.4bn, down 9 per cent on the same period last year.

However, chief executive Tim Cook chose to focus on the success of Apple’s services business - Apple Pay and the company’s internet-based products - which grew more than 20 per cent on last year.

“Our strong September quarter results cap a very successful fiscal 2016 for Apple,” he said.

“We’re thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our Services business, where revenue grew 24 per cent to set another all-time record.”

iPad sales also continue to fall, dropping from 9.9 million in the last quarter to 9.3 million in the last three months.

The tech giant’s net income for the quarter was £7.3bn, and sales of Mac computers rose by 15 per cent on the last quarter, to 4.9 million units sold.

The next generation of Macs are due to be unveiled at a media event at the company’s Cupertino headquarters on Thursday, with a new MacBook Pro expected to lead the announcements.