As the vital festive sales period approaches, are consumers falling out of love with the expensive iPhones? Has the growth in iPhone sales finally forced Apple into a new line of action? Can Tim Cook’s Apple change the story around its business from a story of popular hardware to one of software and services?
Let’s start with Apple’s decision that it no longer plans to report the sales numbers of the iPhone. Given the flat annual sales of the iPhone since the iPhone 6 and iPhone 6 + launch, the story about rising numbers no longer belonged to the actual unit sales, but to the increased margins and increasing average selling price.
If you’re going to sell success, what you need are bigger numbers. With the iPhone XS Plus clocking in at $1500 in some configurations, the scope for higher margins and higher selling prices is pretty much priced out the market. Hiding the iPhone numbers means that the focus can be shifted to the increased revenue from software and services, rather than hardware revenue.
I think that Apple thought it would be quite a long handover period, but this week reports of reduced iPhone XR production line confirms the softening demand for the ‘affordable’ $750 smartphone.
Let us not forget that the traditional rush to pre-order the iPhone XR didn’t result in ’sold out’ signs going out on the 1st day. In fact, it took 4 days before there was a shipping delay being notified to the purchasers. Following that soft launch period, Apple has reportedly cut down the production line of iPhone XR’s from 60 lines to 45. Even allowing for a rush to accommodate the initial demand, the reconfiguration of capacity is cut too noticeable.
What sells well? Last year’s iPhone 8 and 8 Plus, which now came with a $100 discount compared to the launch price. Apple’s push to higher selling iPhones with more margin and more revenue is looking at risks as consumers turn to the cheaper handsets.
Last year, we saw the iPhone X getting weaker than projected sales, with the balance made up by the iPhone 8 and iPhone 8 +. The iPhone XR (arguably the iPhone 9) stepped up to replace the iPhone 8 family in the portfolio. If XR sales are as weak as analysts suggest, and the XS and XS Max sales are only in line with expectations, then Apple’s decision of hiding the sales figures might kick in just as the iPhone hits a downwards curve.
Can Apple depend on revenue from services and software to replace the hardware margins? That could be a tough question to answer given that 59 % of Apple’s revenue comes from the iPhone. Services is a quarter of that, at 15 %.
What happens to Apple’s drive to increase revenue from services given that it sells fewer devices? Because you still need the hardware to run your bespoke services on.
Tim Cook has lifted Apple to be a whopping trillion-dollar company. Can he keep this up with his dangerous decision to change the storyline away from the iPhone?