Apple: Will Supply Challenges Delay iPhone 12 Launch?

Apple (AAPL) will have to deal with considerable supply challenges in 2020, revealed AppleInsider recently, quoting analyst Ming-Chi Kuo. In a new investor note, Kuo said the company would increasingly depend on LCPFPC (liquid crystal polymer flexible printed circuit) antenna technology for its new iPhone models.

In 2020, 70%–75% of new iPhone models will feature LCPFPC compared to 40%–45% in 2019. This change will primarily result from the shift to the 5G network. Kuo said, “5G-enabled iPhones [will account] for 15 to 20% of total shipments in the second half of 2020.” The analyst explained that 4G versions require one LCPFPC unit, while 5G versions will require three. In the note, Kuo stated that the iPhone 11’s successor would also have the LCPFPC hardware. In an October report on MacRumors, Kuo noted that even the iPhone SE2 would require the LCP antenna technology.

The iPhone 7 has already been discontinued, and Apple plans to ship fewer iPhone XRs in 2020. Both these iPhones didn’t require the hi-tech antenna technology.

Moreover, Apple will also require LCPFPC units for new designs of the iPad and Apple Watch in 2020. Currently, only Japanese manufacturer Murata supplies these components to Apple. However, it may not be able to fulfill the massive scale of the company’s requirements next year, cautions Kuo.

Why is Apple betting on this antenna technology

LCP antenna costs relatively little, offers flexible material, and is compatible across temperatures. These features make it ideal for 5G network connectivity.

If Apple fails to bring another large-scale LCPFPC supplier on board, it will likely face serious production challenges. It might not be able to fulfill its targeted iPhone shipments and could extend its timeline for the launch of its 5G phones.

Can supply issues delay the 5G iPhone launch?

5G technology is still in its early days, and it has various demands. Apple wants the technology to mature before it steps in. Issues such as limited suppliers of LCP antennae could prove deterrents to Apple’s 5G launch. The company’s 5G launch has already run into trouble owing to modem issues. The end of its alliance with Intel (INTC) and its long legal battle with Qualcomm (QCOM) have caused it to lag in the 5G race. Indo-Asian News Service quoted CyberMedia Research’s Prabhu Ram on this in September. He said, “Further, the prolonged battle with Qualcomm until April this year, set back Apple by at least by 12-14 months, in comparison to the competition.”

A sound procurement strategy is needed

Apple has the potential to be a market leader in the global 5G smartphone market, according to a recent report by Strategy Analytics. While Apple is shifting its focus to its Services segment, the iPhone is still its major revenue driver. The segment is dwindling, and Apple needs to revive it. A 5G iPhone, or iPhone 12, is a critical development at this juncture. An October article by CNBC cited a note from Bernstein analyst Toni Sacconaghi in which he said, “We underscore that (like last year) near-term investor sentiment is likely to be shaped by iPhone revenues.” Thus, sorting out supply chain bottlenecks right now is critical.

According to Kuo, Apple is considering two suppliers, China’s Avary/ZDT and Taiwan’s Career Technology, for a large scale supply of LCP antennae. Apple will thus need to work on its procurement strategy and pull more LCP suppliers on board. While doing so, the iPhone maker must also consider the cost of procurement as well as the risk factors.

Apple stock could grow more amid iPhone demand

Apple stock has rallied nearly 70% YTD (year-to-date) to close at $263.19 on November 20. Analysts are still upbeat about its performance. On November 19, Morgan Stanley analyst Katy Huberty told CNBC, “We still think the stock has room to run.” One of the reasons she provided was a rebound in iPhone sales, in addition to a Services segment uptick and buybacks. We feel that for it to sustain this demand, the company’s 5G iPhone release will be critical. We’ll be keeping tabs on how Apple deals with the various obstacles in the way of a timely iPhone 12 launch.