What Apple can learn from tepid iPhone X sales

Apple reported last week another record quarter in terms of revenue and profits, but the markets were not too impressed, causing the share price to head south and slip into correction territory.

Key reason for the disappointment was the iPhone sales figure, as it showed a one percent decline in volume terms in the three months to December compared to the same period a year ago.

The company sold 77.3 million iPhones in its fiscal first quarter, falling short of analyst expectations for the crucial holiday period. Meanwhile, the tech giant also gave lower-than-expected revenue forecast for the current quarter.

The news prompted fresh speculation among industry observers that Apple may be witnessing a significant slowdown in demand for its smartphones, particularly for its latest flagship iPhone X.

Such talk is not surprising, given that media reports had suggested recently that the US tech giant was scaling back iPhone X production plans due to not-too-hot demand.

One analyst wrote in a report that he believes Apple could suspend iPhone X production altogether in the second half this year after the firm rolls out newer models.

Now, what seems to have gone wrong with the iPhone X and why have sales of Apple’s anniversary edition gadget not been up to the mark?

Looking back, it appears Apple may have miscalculated on several aspects as it rolled out the X model late last year.

From the user perspective, iPhone X failed to offer any great surprise despite its new-high premium pricing.

With the gadget costing more than US$1,000, many people chose to give it a miss. Meanwhile, some consumers simply opted for older models that didn’t burn too-big-a-hole in the pocket.

Though Apple insists that iPhone X remains the top seller, with CEO Tim Cook saying the device “has been our top-selling iPhone every week since it shipped in November”, the overall phone sales volume in the last quarter and the forward revenue guidance suggest things aren’t too hunky dory.

Starting from late December, many analysts and media outlets have reported that Apple was cutting down on orders for components for making the iPhone X.

In late January, the Nikkei published a report that said Apple had notified suppliers about a cut in its production target for the first quarter of this year to 20 million units, after previously telling them to expect to produce 40 million units.

The output cut was due to the weaker-than-expected sales in the holiday season in key markets such as US and Europe, according to the report.

Meanwhile, analyst Ming Chi Kuo of KGI Securities has predicted in a note that the iPhone X will be discontinued once a successor model or models — rumored to include larger-screen versions — hit the market in 2018.

That’s in contrast to Apple’s standard retail strategy, which is to leave the earlier iPhone model on sale at a reduced price.

If the iPhone X is really popular, as the company claims, there should be no reason for Apple to reduce the number of orders as well as suspend its production later this year.

But the December quarter overall figures do tell a different story, with the company suffering its first year-on-year decline for iPhone in the holiday season since the smartphone was launched a decade ago.

Some may argue that the iPhone X was launched only in November, which led to the company missing out on full-quarter sales.

That may be so, but the fact is demand for iPhone X cooled quickly before Christmas, as several market observers have pointed out.

While Apple’s die-hard fans were willing to pay the high price for the anniversary edition of iPhone, many consumers looked at other cheaper options.

Some people who were switching from the Android camp preferred to buy the cheaper iPhone 8 series or even the iPhone 7 models, rather than the X.

The cheaper version of iPhones did contribute a lot in keeping iPhone shipments buoyant in the holiday season. According to some reports, more iPhone 7s were activated recently than the iPhone 8 and iPhone X.

iPhone X is no doubt a great product with advanced technology and components, but the premium set on it was just too high in the eyes of many consumers.

The new features of iPhone X, such as Face ID and full screen without Home button, failed to convince users for the upgrade.

Many iPhone Plus users complained that the X screen is “smaller” than their old phone, even though the technical specifications show the new gadget has a 5.8 inch screen versus 5.5 inch screen for iPhone Plus series.

A change in design led to the screen appearing smaller than it is actually, making it an issue for some people.

The device size may well have one of the key factors behind the stagnant iPhone X sales, especially in the Asia Pacific region where people love big-screen phones to enjoy videos and mobile games.

Apple should learn some lessons from the market response to iPhone X and adjust its product features and pricing strategy going forward to give fresh momentum to its main growth engine.

The successors of iPhone X must come with reasonable price and attractive features, with a real ‘wow’ factor in terms of user experience.

Given the high stakes involved, Apple can’t afford to make any mistakes.

Originally published at www.ejinsight.com on February 6, 2018.

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