It’s no secret that Apple Inc. (NASDAQ:AAPL) has been experiencing iPhone X production challenges.
Already worrisome, the issue has gained new urgency with slower than expected iPhone 8 sales. If consumers are holding off buying the iPhone 8, and there are severe iPhone X shortages, the outlook for AAPL stock is not exactly rosy.
A new report claims that AAPL is going to extremes to ramp up iPhone X production by relaxing the specifications on its TrueDepth camera system.
That means Face ID — the biometric security replacement for Touch ID, and a key feature of the iPhone X — is not going to be as accurate as Apple originally claimed.
iPhone X Production Challenges
Rumors of iPhone X production challenges have been circulating for months and it quickly became clear that where there’s smoke, there’s fire. The culprit has been pinpointed as the TrueDepth camera system used for the iPhone’s Face ID facial recognition. The components used for the advanced system have suffered low yields. The projector that flashes 30,000 dots onto the face has been singled out as particularly difficult to manufacture within Apple’s demanding tolerances.
Apple has been hoping for an iPhone upgrade super cycle. So have investors, who are looking to a one-two punch of the iPhone 8 and iPhone X to drive AAPL stock to new heights. But with iPhone 8 sales slower than expected, that scenario is already in jeopardy. An iPhone X shortage caused by manufacturing challenges would all but sink it.
Apple’s Solution? Reduce Face ID Accuracy
A report published this morning by Bloomberg suggests that Apple is worried enough about not having enough of its flagship smartphones to sell during launch and the holiday quarter that it is taking drastic measures. According to Bloomberg, AAPL has told its suppliers that they can lower the level of precision required for the TrueDepth system.
“To boost the number of usable dot projectors and accelerate production, Apple relaxed some of the specifications for Face ID.”
Bloomberg’s sources claimed that with Apple’s original specifications, the two suppliers making the dot projectors were seeing yield rates of only 20%. By lowering its standards, AAPL has been able to boost that to the 50% range, while the time required to test the modules has also been reduced.
If true, this is a very unusual move on Apple’s part. The company is usually unmovable in its demand for precision and high quality for its products. Apple declined to comment on the story.
Of course the big downside is that Face ID will be less accurate. Given that Face ID is one of the key features of the iPhone X, AAPL obviously didn’t make the decision lightly.
Impact on Face ID and AAPL Stock?
There have been concerns about Apple’s choice to drop the Touch ID fingerprint sensor and go with Face ID facial recognition instead. Rival Samsung Electronics offered facial recognition through iris scanning on the Galaxy S8 earlier this year. That system was fooled within several months, using a photo printed on a laser printer and a contact lens. The Galaxy S8 still has its fingerprint reader to fall back on, though; the iPhone X has only Face ID.
To combat those worries, Apple has been insistent that Face ID is far more secure than Touch ID. At the new iPhone’s September unveiling, the company went to great lengths to show how the 30,000 invisible dots projected on the face create a detailed depth map that cannot be spoofed by photos or masks.
While AAPL’s decision to loosen specifications for the dot projector will definitely mean Face ID is less precise than originally planned, Bloomberg’s sources say it remains much more secure than Touch ID, which the company pointed out has a 1 in 50,000 chance of being unlocked by someone other than the owner of an iPhone.
Apple’s move is an uncharacteristic gamble. But with AAPL stock still off over 4% from its pre-iPhone event level and the prospect of low holiday quarter sales instead of the expected upgrade super cycle, the company had to do something to boost iPhone X production.
With the iPhone X up for pre-order at the end of this week and launch day on Nov. 3, we’ll soon find out if the company made the right call.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.