KGI said worst soon over for Apple (AAPL) iPhone X production

(Updated - October 19, 2017 11:30 AM EDT)

KGI analyst Ming-Chi Kuo said the worst will soon be over for Apple (NASDAQ: AAPL) iPhone X production.

Kuo said the biggest hurdle for iPhone X shipments is likely an antenna FPCB shortage. "Special materials, recipes, design, processes, equipments and tests are required for antenna FPCB, as the specifications for iPhone X antenna (supplied by Amphenol (US)) are higher than those of iPhone 8 and only Murata (JP) and Career Tech (6153 TT, NT$30.1, NR) can meet Apple’s requirements. Murata (originally with a 60% order allocation or higher) won’t be able to resolve its issues before 2Q18, and thus has been fully replaced by second supplier Career. We believe Career will ramp up in November, as capacity expansion takes time, and its materials, recipes, design, processes, equipments and tests are different from those of Murata."

Wide-angle camera module FPCB supply shortage may be the second hurdle, the analyst also said. "The iPhone X’s dual camera comes with an upgrade in specifications (mainly a telephoto camera module with OIS and telephoto lens upgrade to f/2.4 aperture). Also, the wideangle camera module does not share the same substrate with the telephoto camera (the dual-camera modules of Samsung (KR) and Huawei (CN) both use the shared substrate design), so the requirements on the FPCB are much higher. We believe the quality issues of "Interflex’s (KR) wide-angle camera module FPCB (shipped to LG Innotek (KR), the major supplier of the iPhone X’s dual-camera module) have led to the supply shortage."

Lastly, the analyst said shipments of dot projector take time to ramp, but worst is behind us. "We believe the previous design issues of the dot projector sometimes being unable to recognize human faces has been resolved after active alignments or environmental tests were addressed. Shipments of dot projector from LG Innotek will likely ramp substantially from November. With support from Hon Hai (2317 TT, NT$113, NR), Sharp (JP) may also ramp
up its output in December."

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