Can Apple’s Supply Chain Deliver the Goods?

Analysts John Donovan and Steve Mullane of boutique research outfit BlueFin Research Partners today offer up results of their review of Apple’s supply chain, saying Street estimates for how many iPhone units may be sold are too low.

The authors predict the release of an “iPhone 6” will be a “white hot” opportunity for Apple, when the phone is released in September, as they expect:

We have been vocal in our belief that the iPhone demand scenario would beat initial consensus on a unit basis, and now that this sentiment is being shared more broadly, rumblings of massive iPhone 6 builds that could lift units even higher are surfacing. Our research continues to point to a September release with most activity in the CQ4 period.

Estimates being thrown around for the impact of the iPhone 6 ranges from 45-70M units this year, and we are adjusting our 2014 iPhone 6 units at this time to north of 55M. We believe that the iPhone6 product will fuel upgrade activity due to massive improvements throughout, unlike the iPhone 4 to iPhone 5 transitions that offered little differentiation.

We remain resolute at this time that our initial 174M total for 2014 is still in play and that the mix of iPhone 5 vs iPhone 6 is changing, but not the total – yet. The lackluster reviews for the Samsung S5 and the projections for a significant roll-off in demand after the frenzied global release all portend a white-hot opportunity for Apple. We continue to believe that the combination of the correct product mix and the advent of lower cost options and relaxation from carriers relative to upgrades/refreshes should translate into solid momentum for the iPhone as 2014 progresses.

We also expect stronger demand for products in China from China Mobile, China Telecom and China Unicom, based on the massive installed base of 3G products in the region, with expected price promotions from CHA and China Unicom to combat the CHL rollout.

The discussion echoes remarks yesterday by ISI Group’s Brian Marshall, although Marshall indicated he thought an iPhone 6 might be out by as soon as the summer. Note that a piece by the China Times yesterday, dug up by AppleInsider, cites a Q3 volume production time frame for the device.

Mockup of iPhone with 4.94-inch screen, created by Marco Arment

Related: Changing Supply Chain Strategy Will Make Apple Even More Efficient and Effective

The authors write “there is also growing optimism on the iPad front as we expect a new hybrid/detachable iPad/MacPro product will propel sales mid-2014,” though a report by Jim Hsiao of DigiTimes on Friday indicated that a rumored larger-screen iPad had been shelved for the moment because of production difficulties.

The authors write that their inquiries about Samsung Electronics (005930KS) chip production for Apple in Samsung’s facilities in Austin and Korea are “on plan for Q1,” but that Taiwan Semiconductor Manufacturing (TSM) will take over from Samsung as the lead producer of Apple’s next chip, presumably an “A8” processor:

TSMC looks to take control as the main supplier for AAPL next generation A8 series processor as Samsung 20nm yield issues continue. In our last AAPL Update on March 6th, we noted that both Samsung and TSM were struggling with the AAPL 20nm technology node. Our latest checks indicate that Samsung production plans remain on indefinite hold for this technology due to significant yield issues, while TSM had to make some tweaks in their CMP process (involving both Cabot Microelectronics (CCMP, $44.94, no rating) aluminum slurry and Fujimi’s barrier slurry layers), which put their 20nm production on hold for the last three weeks. TSM is estimating another two weeks to resolve the issue and to resume the full production ramp plans.

The latest production reads and forecast for the 20nm technology node at TSM indicates that they will be ramping from their current levels of 8,000 to 10,000 wpm to an estimated 30,000 wpm by the month of June. These ramp plans at TSMC would be consistent with a new AAPL product introduction in the September timeframe. One key question to ponder is if Samsung can’t resolve their yield issues soon, will it be too late for them to participate in this technology node or do they need to re-focus their resources on the 14nm technology node instead.

Related (paper): In the Belly of the Beast: Samsung Electronics’ Supply Chain and Workforce in South Korea

Note the remarks about TSM’s 20-nanometer production seem different from cautious remarks yesterday by Susquehanna Financial Group’s Mehdi Hosseini.

Source: Tech Trader Daily