KGI: iPhone 8 sales in line with expectations, analysts overplay short Apple store lines

Citing analysis of first weekend sales, alongside research provided by Localytics, KGI analyst Ming-Chi Kuo in a note to investors on Tuesday said worries over a slower than normal iPhone release are exaggerated by an "excessively negative" market.

Analysts and media outlets portrayed weakened sales for Apple's flagship device, citing unusually low turnout at the company's retail locations on launch day last Friday. Some speculated the short lines were in large part due to a looming iPhone X launch, pre-orders for which are slated to start on Oct. 27. Kuo agrees, but notes demand is in line with Apple's production plan.

The analyst pegs iPhone production as split for iPhone X and iPhone 8/8 Plus models, with Apple dedicating a full half of its smartphone manufacturing might toward the new flagship phone. This appears to match consumer sentiment, Kuo said, as combined first-week adoption rates for the iPhone 8 and 8 Plus are roughly half that of iPhone 6s and iPhone 7 launches.

Notably, Kuo believes iPhone 8 Plus outsold iPhone 8.

According to Kuo, market analysts tend to overlook sales momentum within cellular carrier and contract channels, instead focusing on observed momentum in outlets that deal mostly in unlocked or SIM-free devices. Apple stores are one such example of an unlocked/SIM-free channel, Kuo said.

"While we acknowledge that queues outside SIM-free channels have been much shorter than after previous iPhone launches, we see stable first-weekend demand for the iPhone 8/8 Plus in carrier channels," Kuo writes. "Most of those camping outside unlocked-device outlets are presumably hardcore Apple fans and heavy users, whose plan this year is to gear up for the iPhone X."

Diving deeper into production-side observations for the currently available 8 series, Kuo notes manufacturing during the third fiscal quarter will be roughly split between the 4.7-inch and 5.5-inch models. Together, production of iPhone 8 and 8 Plus should yield 16 to 18 million units hitting the channel.

Apple CEO Tim Cook commented on iPhone 8 and Apple Watch Series 3 supply constraints, or lack thereof, in an interview last week.

"We've sold out of iPhone 8 and 8 Plus in some stores, but we've got good supply there. You can see what's going on here this morning — I couldn't be happier," Cook said.