Designer Martin Hajek's render of the "iPhone 8" in white based on current rumors.Martin Hajek
Apple may have only a few weeks to solve an issue with the fingerprint sensor on the upcoming iPhone, KeyBanc Capital Markets equity research analyst Andy Hargreaves wrote in a recent note to clients.
Apple is expected to launch a redesigned iPhone this fall with a screen using next-generation OLED technology that covers the entire face of the phone.
The company had hoped to be able to put the fingerprint sensor, which is currently integrated into the iPhone's home button, underneath the screen using a capacitive fingerprint sensor, but Apple "continues to struggle with fingerprint solution," according to Hargreaves.
He suggests that Apple is currently looking for a workaround to its fingerprint problems, or it might have to delay the release date of the redesigned iPhone.
"Our supply-chain conversations indicate Apple continues to struggle with the workaround for the fingerprint sensor. This increases the potential that the new OLED iPhone could be delayed, or ship without a fingerprint sensor, either of which could increase risk to unit sales and mix for the cycle," writes Hargreaves.
What Apple plans to do with the fingerprint sensor has been the biggest mystery in the lead-up to the next iPhone launch. Both KGI Securities analysts and Bloomberg have reported that Apple may be phasing out the Touch ID fingerprint sensor in favor of a facial-recognition feature that would be used to unlock the phone and enable mobile payments.
Furthermore, Hargreaves says Apple only has until August to place the orders for the parts it would need for a fingerprint sensor — and even in that case, it would take 12 weeks until Apple could fully manufacture enough iPhones, which suggests production in large volume won't start until late October or November.
"Based on typical lead times, we believe Apple would have to order fingerprint ICs before August to reach volume in time for holiday shopping. If Apple cannot find a solution in time, it could abandon fingerprint in favor of facial recognition," Hargreaves writes.
"Apple's issues with fingerprint sensing in the OLED iPhone appear to have required abandoning at least one major technology investment and intense use of first- and third- party engineering resources," he continued.
Apple has three options, according to the note: It could fix the problem, it could replace the fingerprint sensor with facial recognition, or it could delay the launch of the upcoming iPhone.
Hargreaves sees moving to facial recognition alone as a potential problem for Apple, and says it could possibly hamper Apple Pay, Apple's mobile wallet software.
"We believe Apple’s facial recognition solution should work from many angles and in low-light environments. However, it would not work without clear line of sight to the user's face. Even if this encompassed just 5% of login scenarios, it would mean that several times a day the new iPhone would perform worse at an elemental feature than older iPhones, which would risk pushback from consumers," Hargreaves writes.
So what Apple likely wants to happen is that it finds a way to integrate the fingerprint sensor into the upcoming iPhone. But if it can't solve that problem by the end of the summer, then it's going to have some hard choices to make, according to the Keybanc researcher.
Current rumors suggest Apple will launch two other phones that are more affordable alongside the redesigned "OLED" iPhone. These two devices could look more similar to the iPhone 7 and 7 Plus, and they would probably remain close to them in price — closer to $700 than $1,000. According to analysts, these phones will have LCD screens, which are abundant.
Hargreaves forecasts that Apple will manufacture somewhere around 64.5 million of the older, LCD iPhones, and 47.9 million of the OLED iPhone 8, in the second half of 2017, but that mix could change depending on if Apple finds a fingerprint solution.
KeyBanc Capital Markets gives Apple a price target of $144 and a "sector weight" rating.