iPhone X demand - which was already looking soft - could be even worse than some of the most pessimistic estimates.
While analyst expectations have mostly been negative for Apple heading into its next quarterly earnings report on May 1, it looks as though the iPhone X may have performed worse than most analysts have estimated. With a smartphone market that is globally becoming heavily saturated, it turns out that there may not be as many people as originally thought that get excited about the idea of shelling out $1000+ for a smartphone with features that have already become ubiquitous.
As Fast Company becomes the latest to report, Apple not only overshot the mark with the amount of iPhone inventory it had produced, and is now trying to "burn off" the rest at a time when demand has "stalled", but doubts are starting to spread within Apple that a $1000 smartphone may not have been the best idea...
The narrative is growing that demand for the $1,000 iPhone X has stalled in the first part of 2018. It’s further bolstered by new information from a supply chain source with direct knowledge of Apple’s plans saying the company has ordered the production of only 8 million iPhone X units in calendar Q2 of 2018.
This source says Apple ordered the production of too many units of the iPhone X in the last calendar quarter of 2017, and is now trying to “burn off” the inventory that has piled up at its resellers.
Apple sold 77.3 million total iPhones during the 2017 holiday quarter. Apple CEO Tim Cook said the X outsold all other iPhone models every week of the first quarter after the device’s launch on November 3, 2017, launch. And a high average sale price of $796 across all iPhone models suggested that the X, Apple’s most expensive phone, was indeed a heavy seller. Above Avalon analyst Neil Cybart says that the X contributed about 35% of total phone sales during the holiday quarter, which works out to about 27 million phones.
But as the global smartphone market has ceased to grow, and as smartphone owners hold on to their current devices longer, consumers may be less apt to part with more than a grand for a phone.
Our source says Apple is disappointed with sales of the iPhone X, and doubts have grown within the company that releasing a $1,000-plus smartphone in the current global smartphone market was a winning idea.
Hardly coming as a surprise in light of poor earnings reports by Apple semiconductor suppliers , the article goes on to confirm that iPhone X channel checks suggest a collapse in both demand and channel checks.
The new Q2 production data point comes on the heels of Samsung’s quarterly earnings, in which the company reported soft demand for its OLED displays. Samsung makes the OLED display used in the iPhone X. The South Korean company said it expects this slow demand to continue through the second calendar quarter. The softness isn’t entirely attributable to Apple; Samsung uses its OLED displays in its own smartphones, sales of which were impacted by competition in the high-end phone market, the company said.
Earlier this week the iPhone X supplier TSMC warned investors about slow demand for its smartphone chips. Analysts had been expecting $8.8 billion in revenues from the chip maker, but Taiwan-based TSMC dropped its second quarter guidance to between $7.8 billion and $7.9 billion.
The Austrian laser tech company AMS, which supplies components used in the iPhone’s facial recognition system, also ratcheted down its revenue expectations, stating it expected revenues in its second quarter to be half of what they were in the first.
And as we reported previously, analysts' targets for Apple's upcoming quarter have become increasingly pessimistic, and the company is widely expected to put up numbers that aren't going to impress:
Some analysts won’t be very surprised by Apple’s low Q3 X production. Last month Nomura’s Anne Lee reduced her estimate of iPhone X calendar Q1 sales to between 8 million and 12 million. Citi analystsbelieve Apple will sell 14 million iPhone X units in calendar Q2 and just 7 million in calendar Q3. Both of the analyst reports cited consumer hesitation at the X’s high price tag as the likely cause.
In a time when virtually all smartphones, including prepaid 7-Eleven "specials", have much of the same core functions, Apple's iPhone is no longer far ahead of the pack; in fact compared to recent Samsung offerings, it has been years behind in some cases. Competition in mobile phones has driven quality higher and prices lower – something one would expect in an efficient industry when the government isn't insuring or subsidizing preferred providers – consumers can get actually get a better product for much less money
We previously reported earlier this week, that one of Apple's key suppliers had what analysts dubbed was a "spectacular miss" and that this likely painted an ugly picture for iPhone demand. It was another day, another flashing red warning that sales of the iPhone X are far worse than Tim Cook had ever expected; courtesy of Austrian chipmaker AMS AG - which makes the optical sensors that control brightness and color - which just days after a similar warning from semiconductor giant Taiwan Semi, became the latest Apple-supplier to cast doubt over the iPhone's chilled reception.
AMS shares plunged as much as 14% several days ago, the most this year, after warning on negative operating margins because of low production capacity at its Singapore factories, and after its guidance for sequential revenue drop in 2Q missed the lowest estimate among analysts in a Bloomberg survey, adding to the recent negative datapoints in the iPhone X supply chain.
Mirabaud analyst Neil Campling said AMS’ "spectacular miss on guidance" was so bad, "it’s surprising the company didn’t preannounce." Campling also said that major product changes and product transitions blamed are “all Apple, specifically iPhone X" and added that "phasing down iPhone X has taken the supply chain by surprise."
Apple will report Q1 earnings on May 1, and investors and analysts will be watching very closely to see if the iPhone glut is as bad as it reports suggest. The good news, for Apple, is that courtesy of its quarter trilion in cash, the company will just end up buying back more stock to make up for any material shortfall. The problem is that unless it can also hand over billions to consumers around the globe to buy its products, Tim Cook may have no choice but to sharply lower prices in a field that is becoming increasingly commoditized as Apple joins Amazon in the hunt for the lowest profitable margin, even if Cook appears to have lost the race to become the world's first $1 trillion market cap company prematurely.