Apple's betting big on this year's iPhone

Ahead of the current Apple iPhone product cycle, many investors and analysts were expecting the introduction of the iPhone X -- the first redesigned iPhone in years -- to drive substantial iPhone upgrade activity, fueling significant iPhone unit shipment growth.

However, that growth didn't materialize. During the first half of fiscal year 2018 -- that's the current fiscal year -- Apple reported that iPhone unit shipments were up a smidgen year over year, but it wasn't anything to write home about. On the bright side, Apple shipped a richer mix of iPhones, which helped drive iPhone selling prices and iPhone revenue up substantially.

Per a new report from analysts with BlueFin Research Partners (via Barron's), Apple seems quite optimistic about its upcoming iPhone product cycle -- at least based on the number of next-generation iPhones that the analysts say Apple is instructing its supply chain to build.

Big numbers

The analysts claim that Apple is planning to manufacture 91 million of the new iPhones during the second half of calendar year 2018 with an additional 92 million units rolling off the production lines in the first half of calendar year 2019. The analysts say that production plan for the first half of 2019 in particular would be "far larger than normal cycles."

Interestingly, the analysts said that the relatively muted product cycles that Apple has seen over the last couple of years "was below historical patterns for myriad reasons." Those reasons include "size, cost, [and] lack of differentiation from previous models." "The iPhone 11 Plus should satisfy those unhappy with the iPhone X due to size concerns, while the iPhone 9 device should satisfy more budget-conscious and the aforementioned extension of the iPhone 8 model builds will round out a fairly extensive line-up," the analysts said.

Investment implications

Investors should keep in mind that while Apple offers a wide array of products and services, most of its revenue and profit comes from iPhone sales. In the company's last fiscal year (that's fiscal year 2017), iPhones made up a full 62% of its net revenue. Apple's iPhone business dictates how well Apple does.

The information from BlueFin Research Partners is reason to be optimistic about Apple's business performance over the coming fiscal year. Analyst estimates for Apple's fiscal year 2019 (that's the fiscal year that'll encompass Apple's upcoming iPhone product cycle) call for revenue growth of just 4.3%. That's a big slowdown from the 13.9% that the company is expected to enjoy in fiscal year 2018 .

If BlueFin Research is right that Apple is gearing up for a much larger-than-typical iPhone product cycle, and if we assume the other areas of Apple's business that have been contributing to growth (e.g. Apple Watch, accessories, and services) continue to grow, then those analyst estimates could prove to be too low. Often, company stock prices are based on how investors expect the business to perform, and analyst estimates generally give us a sense of what investors are expecting. If those estimates are revised up, then the stock price could follow. With that being said, it's important not to read too much into these supply chain reports. Right now, we're only getting a sense of the demand that Apple's expecting (or possibly hoping) to see during the coming product cycle. If early demand for Apple's new products is lower than expected, then Apple could revise down its iPhone manufacturing plans.

In fact, that's exactly what happened part way through the current iPhone product cycle -- several component suppliers reported a reduction in component orders once it became clear that Apple wasn't going to ship as many new iPhones as it had hoped.

There's reason to be cautiously optimistic going into this next iPhone product cycle, but don't think that just because there are some encouraging supply chain data points that a monster iPhone product cycle is a sure thing.