The supply chain situation surrounding Apple's iPhone 13 production is improving, but there are still potential risks ahead for the lineup in the fourth quarter of 2021, JP Morgan says.
Credit: Apple
In a note to investors seen by AppleInsider, JP Morgan analyst Samik Chatterjee says that the iPhone 13 focus has recently shifted to supply constraints because of the increasing likelihood of Covid-19 resurgence and recent challenges to production in China driven by power usage restrictions.
Chatterjee notes that the supply ramp up on the new iPhone lineup has been slower than usual -- even beyond the slightly delayed production start because of camera module issues.
The analyst says that the production equated to around two to three weeks, and though the start of production didn't "change materially," it implied that Apple had limited inventory heading into the iPhone 13 launch.
Camera module production continues to be the primary bottleneck for the iPhone 13 manufacturing, Chatterjee added. More specifically, issues around the sensor-shift optical image stabilization are seeing problems with supplier ramp. Covid-19 cases and lockdown restrictions also snarled production in Vietnam.
"With the easing of lockdown restrictions on Oct 1, and the flexibility to also leverage LG Innotek's camera facility in Vietnam, or a secondary facility in South Korea, we estimate production will ramp steadily from hereon," Chatterjee writes.
On the Chinese power regulations, Chatterjee says that the effect has been limited on large components and assembly. However, he does note that smaller component manufacturing could see an impact. The broader supply chain could also be affected by prolonged power shortages.
The potential headwinds to Apple's iPhone build plans could be as high as five to 10 million units out of the 143 million units modeled for the second half of 2021. It could drive muted revenue seasonality for the fourth quarter of 2021 and the first quarter of 2022, Chatterjee notes. While Apple is well-positioned for strong sales, the analyst believes the supply risks are noteworthy enough to continue monitoring.
Chatterjee maintains his Apple price target of $180, based on a price-to-earnings multiple of 28x on JP Morgan's 2023 earnings estimate of $6.55.