Apple has lowered its revenue guidance from $93 billion $84 billion, ahead of its earnings call scheduled for January 29th. With a drop of $9 billion, poor iPhone sales have literally decimated Apple’s revenue projections.
verb (used with object), dec·i·mat·ed, dec·i·mat·ing.
•to select by lot and kill every tenth person of.
•to take a tenth of or from.
As I reported in the last weeks of 2018, sales of the new iPhones have not met expectations. Following the reduction in orders of materials in the supply chain and the reduced number of production lines, Apple has confirmed in a letter to investors that the new iPhone range is not delivering. CNBC reports:
“If you look at our results, our shortfall is over 100 percent from iPhone and it’s primarily in greater China,” Cook told CNBC’s Josh Lipton in an interview Wednesday. “It’s clear that the economy began to slow there in the second half and I believe the trade tensions between the United States and China put additional pressure on their economy.”
Before the letter to investors was announced, analysts at Citi Research had cut their estimates for Q1 2019 for a second time, dropping it to 45 million handsets in the first quarter. It also notes that Apple’s actions indicate that it is entering the destocking phase of the 2018 iPhone family. Sonam Rai for Reuters:
“The material cut in our forecasts is driven by our view that 2018 iPhone is entering a destocking phase, which does not bode well for the supply chain,” analyst William Yang wrote in a client note.
Meanwhile, Apple continues to push its high-end high-cost model, with a new push on the iPhone XS Max in India. Foxconn will be producing handsets in India for local sales – a first for the iPhone. This can be seen as a courageous decision, because not only is Apple’s market share in India is already falling, whatever strength the iPhone has in the Indian market is in lower cost models such as the iPhone 6S and the iPhone SE.
Tim Cook’s decision to push the price of the iPhone higher has allowed Apple to increase margins and build up a record-breaking financial position for the company, but it has not seen a noticeable increase in annual handset years since the launch of the iPhone 6 Plus. That flat sales line is looking to be on a downward trajectory – just as Cook informs his stockholders that Apple will no longer be reporting unit sales and will be focusing on software and ancillary services revenue to maintain income.
But how can you increase the ancillary sales if the front-line product is no longer selling?
This is where Apple needs to sit down and decide if it wants to become a boutique high-end luxury smartphone maker, or if it wants to be a significant volume player in the industry. There’s absolutely nothing wrong with the former. Look at any market and you will find there are successful companies working at high price points with good margins, a loyal fan base, and a thriving business. But do these companies have significant market share?
Tim Cook cannot have it both ways. If he wants Apple to be a luxury, then it needs to be satisfied with smaller sales, smaller market shares, and stop trying to reach a mass market audience. If he wants to be seen as a premium brand that balances out a higher than average price but still delivers towards a wide consumer base, then the iPhone needs an affordable modern product that can reach the mass market.
I don’t mean relying on the two-year-old iPhone 7 at a lower price point – selling a third-generation hand-me-down requires a rabid fanbase that can be satisfied with 36-month old hardware as a status symbol. What you need is a modern current generation handset that carries the same values as the parent company but works towards a price point that will allow more people to buy a new handset, that will fight against the feel of Android handsets that are more than good enough, and perhaps then you can grow the market share to the point that ancillary services makes financial sense.
In other words, you need something like the iPhone SE for 2019.
The SE debuted six months after the launch of the iPhone 6S and iPhone 6S Plus. At that point it was clear that the iPhone 6 Plus was not the dawn of a brave new world that would lead to continually increasing sales – it had simply given the choice of a larger screened iPhone to consumers who would normally have settled for the one size fits all approach. The iPhone 6S family was falling short… at which point the cavalry of the iPhone SE came over the hill, those who wanted a smaller screened but modern iPhone were satisfied, and sales, while not rising, at least stabilized.
With the iPhone XS and iPhone XS Plus failing to make significant inroads, and the iPhone XR having to be marketed at a $300 discount (albeit with an obscured trade-in clause), Tim Cook needs his cavalry.
Will he be humble enough to admit that Apple needs the iPhone SE 2 as quickly as possible?