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Apple warns profits may suffer as it struggles to cope with demand for largest iPhone 7 Plus

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Apple’s Tim Cook shows an iPhone 7 to performer Maddie Ziegler during the launch event in San Francisco. AFP/Getty Images

Apple’s Tim Cook shows an iPhone 7 to performer Maddie Ziegler during the launch event in San Francisco. AFP/Getty Images

Apple’s Tim Cook shows an iPhone 7 to performer Maddie Ziegler during the launch event in San Francisco. AFP/Getty Images

Apple has said it has been caught off guard by demand for its biggest smartphone, the iPhone 7 Plus, and that the miscalculation may hit profits.

The tech giant is not sure it can make as many units of the iPhone 7 Plus as consumers want in time for the Christmas rush, ceo Tim Cook told analysts.

However, the company will manage to make enough of the smaller iPhone 7 models, he added.

Demand was strong "particularly on the iPhone 7 Plus versus our forecast going into the product launch", Cook said.

The bigger phones bring bigger profits, and Apple's forecast for thinner-than-expected margins concerned investors after it reported quarterly earnings on Tuesday.

Apple issued a conservative outlook on margins for the US holiday quarter, 38pc to 38.5pc, versus expectations of nearly 39pc.

It was not immediately clear if the smartphone shortage caused the miss.

"You're not able to get that product into the hands of the person who wants it right here, right now," said IDC analyst John Jackson. "Those are dollars not in your hands."

Apple unveiled its newest iPhones last month. The 5.5-inch Plus model is the first iPhone to have a dual camera on the back that lets users take better portrait shots and zoom in from further away.

Apple is still getting to know how consumer interest varies for larger and smaller phones, having launched two competing sizes only in 2014, he said.

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The company may also have underestimated the number of customers it would win from Samsung, which recently recalled its own large format phone, the Galaxy Note 7, after a number of them caught fire.

Apple Chief Financial Officer Luca Maestri said that it was "impossible to know" the effect of Samsung halting production of the Note 7 earlier this month.

"We cannot fulfil all the demand that is out there right now," he said.

Speeding up production would be difficult, analysts said.

The company cannot contract new suppliers, hire more workers and open factories overnight, said Trip Chowdhry, managing director of Global Equities Research.

"You can't just shoot iPhones out of an assembly line at the speed of a bullet," he said. "Apple does things to perfection. There is no need to rush and create an inferior product the way Samsung did."

The average sales price of the iPhone fell to $619 in the fiscal fourth quarter from $670 a year earlier as some customers opted for the cheaper, smaller iPhone SE over the higher-specification 6S and 7, which was introduced on September 16.

The average price should recover by the end of the holiday quarter, Maestri said.

Even as Apple sold 45.5 million iPhones in the quarter, more than analysts' projected, Maestri and Chief Executive Officer Cook said that the company had been unable to manufacture enough of the new iPhone 7.

"Demand is outstripping supply in the vast majority of places, particularly in the iPhone 7 Plus," Cook said, referring to the larger-screen version of the new handset. "We're working very hard to get them into customers' hands as quickly as possible."


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