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.
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.
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 analysts believe 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.
This view could very well be reflected in the pricing of Apple’s 2018 phones. The company will reportedly announce a new 5.8-inch OLED display iPhone, a 6.5-inch OLED display iPhone, and a 6.1-inch iPhone with an LCD screen.
That LCD phone could be priced as low as $550, says KGI Securities analyst Ming-Chi Kuo. And it’s that phone that Apple believes will contribute half of the unit sales of the 2018 lineup during the year after its launch, our source says.
Some analysts have decidedly more optimistic views about iPhone X demand than Nomura and Citi. Above Avalon’s Cybart believes Apple will have sold 60 million iPhone X units in total by the time the 2018 iPhones show up in September, and will have made a tidy $59 billion of revenue from the 10th-anniversary iPhone. Assuming Cybart’s estimate that Apple sold 27 million iPhone X’s in the final quarter of 2017, Apple would have to sell 33 million more units of the X in calendar Q1 to Q3 to hit the 60 million mark.
“Perspective is needed when judging iPhone X performance in the marketplace,” Cybart wrote in an email to Fast Company. “Most smartphone manufacturers would crave for such a strong-performing device. At the same time, iPhone X introduced Face ID technology to tens of millions of users in just the span of a few months.”
Cybart also stresses that Apple pundits shouldn’t judge new iPhones on the same scale as the blockbuster iPhone 6.
“We have entered the iPhone’s Goldilocks era,” Cybart said. “Status quo is the new normal when it comes to unit sales. While Apple may still report quarterly iPhone unit sales growth from time to time, especially if year-over-year compares are favorable, the growth would not represent some kind of step increase in sales. As long as Apple is able to expand the iPhone installed base, the company will be able to offset some of the sales pressure from a slowing iPhone upgrade rate.”
Apple reports its financial results for the March-ending quarter on May 1. Many analysts’ eyes will be on that ASP metric, which will give a strong hint at where iPhone X sales have headed since the company’s holiday quarter, which set records even though iPhone sales failed to meet expectations.