Apple Struggles With Demand For Dull Devices

It is hard not to admire how well Apple sells iPhones. Through thick and thin, this has been its one constant.

The Wall Street Journal reported November 19 that the Cupertino, Calif., company cut supply chain order orders again for the iPhone XR, released in September. The news sent Apple and the rest of tech tumbling.

Jonathan Ive, Apple’s chief design officer, left, looks at some new iPhone models with CEO Tim Cook during an event to announce new products Wednesday, Sept. 12, 2018, in Cupertino, Calif. (AP Photo/Marcio Jose Sanchez)ASSOCIATED PRESS

I have been a reluctant Apple bull for a long time. I’ve had misgivings about its lack of innovation, along with the recent hypocritical privacy rhetoric.

But when push came to shove, the company always managed to sell a lot of iPhones. The handsets generate a huge amount of free cash flow, which the company uses to buy back stock, hand over fist.

The key is selling iPhones. And now that premise is in serious doubt.

For perspective, according to the WSJ, the original production schedule for the XR, the budget iPhone, called for 70 million units between September and February. In late October, Apple reportedly slashed that target by a third. Then the company cut targets again.

The remedy for the lack of demand has been price cutting. This holiday season Apple has been slashing iPhone prices all over the world. This probably means investors are too pessimistic about overall sales targets. On the other hand, price cutting does real damage to the brand.

It’s no secret Apple is going upscale. It’s relying less on innovation and more on brand. The idea is to charge more for less. In an age of high-resolution screens, the XR gets the same pixel density as the iPhone 4. And its bezels, relative to more expensive iPhones, make the device look like a kids’ phone.

The reviews of the device have been mostly positive. It’s an iPhone. The reviews are always good, and it is $250 cheaper than the little iPhone XS.

The problem is Apple’s budget phone is still $750.

In its haste to move average selling prices up, the company may be excluding a large portion of its loyal customer base, at least for this cycle.

It’s also noteworthy that T-Mobile has begun selling the One Plus 6T smartphone. It is the first time any U.S. carrier has stocked inventory of the Chinese handset maker. The company is known for innovation, customer responsiveness and rapid iteration.

The latest model, issued one day ahead of the iPad event at the end of October, features a huge edge-to-edge display … a massive battery … a fast-charge power brick in the box … and a fingerprint sensor in the screen. Reviewers agree that it is an extremely impressive smartphone.

But the most interesting aspect of the 6T launch occurred outside T-Mobile stores. In a word: lineups. The lineups for the newest One Plus handset were longer than the cues for new iPhones.

All of this is anecdotal, and when the dust settles, Apple has always seemed to make its sales iPhone targets. Except, according to Tim Cook, the company will no longer release sales metrics for individual products … including iPhones.

Traders are worried the magic of the iPhone is gone.

In fairness, there is another big driver for Apple stock. I would expect the company to announce it is stepping up share buybacks in the days ahead. At this stage, that is all that’s left keep hope alive.

Fundamentally, the stock trades at only 10x forward earnings, which is cheap. It’s market capitalization, far in excess of $2 trillion months ago, has fallen to $760 billion.

source: forbes.com