Hon Hai Precision Chairman Terry Gou said his factories can't keep up with iPhone 5 production demands because of Apple's strict quality control. That situation is improving, according to Sterne Agee analyst Shaw Wu, and he thinks Apple is still on track to sell 46.5 million iPhones during the December quarter.
Shaw Wu: iPhone sales to hit 46.5 million in December quarter
Apple's earlier iPhone 5 inventory issues were due to parts constraints, although more recently the bottleneck has been in Hon Hai's Foxconn production factories. Build times are, however, improving, according to Mr. Wu's supply chain checks.
"Recent press reports quote Hon Hai Chairman Terry Gou commenting that the company is having a hard time keeping up with robust demand as the iPhone 5 isn't easy to build due to Apple's high quality standards," Mr. Wu said. "This is consistent with our previous comments that the supply chain bottleneck has moved from components to the assembly itself. However, we continue to pick up much improved capacity in our supply chain work and remain comfortable with our 46.5 million total iPhones for the December quarter."
Mr. Gou noted earlier this week that Foxconn couldn't keep up with Apple's iPhone 5 demand because the construction process was causing delays, backing up a company statement from October where executives said, "The iPhone 5 is the most difficult device that Foxconn has ever assembled."
Mr. Wu commented, "The lower than desired yields is due to AAPL's very high standards where it aims to produce each model to be an exact replica where variance is measured in microns." He added that despite Apple's high quality demands, Foxconn is improving its output.
Customers started lining up for the iPhone 5 when it went on sale about a month ago. Supplies are still limited enough that the company's online store is showing 3 to 4 week shipping delays, and in-store purchases are typically limited to customers that reserved theirs the night before.
Mr. Wu is maintaining his "Buy" rating and US$840 target price for Apple's stock. Apple is currently trading at $545.43, down 12.57 (2.25%).