Evidence Mounts for Weak iPhone XR Sales

Just over a week ago, we covered news from Asia Nikkei Review suggesting that Apple might have significantly cut its orders for new iPhones, specifically the iPhone XR. At the time, I suggested taking the news with a grain of salt, noting that there were many reports of low iPhone X production and poor sales figures around the iPhone 8 last year, only for the iPhone X to wind up being the most popular smartphone in the first part of 2018. While sales have slowed for the company overall, it’s not clear that this is specific to Apple — phone unit shipments have been falling for several quarters according to IDC, and increased profits are being driven by higher prices per unit and customers trading up to premium experiences.

But evidence is building that Apple really does have an iPhone XR problem, fed by multiple independent sources. First, two of the core component suppliers for the device have both sharply cut their outlooks. First, Lumentum Holdings, which supplies components for FaceID, cut $70M off its revenue forecasts for Q4 — and its previous forecasts were only 12 days old. A cut that large, that fast, implies that Apple slashed shipment expectations for the XR as Nikkei reported. The company blamed the cuts on a customer, “one of our largest,” for laser diodes used in 3D sensing.

Next, screen maker Japan Display Inc cited lower demand for its LCDs in cutting its own revenue expectations. Japan Display Inc builds LCDs rather than the OLEDs used in the iPhone XS, XS Max, and X. And, of course, Apple’s Tim Cook warned on November 1 that the company’s sales performance would likely be lower than Wall Street expectations, which was the impetus for Apple losing its $1T valuation in the first place. Apple blamed the weakness on emerging markets and foreign exchange costs, including weak sales in Brazil, India, Russia, and Turkey.

iPhone sales by quarter. Data by Statista

All signs, therefore, point to generally slow uptake for the XR, a fact perhaps most notable for being far from the first time Apple has had trouble boosting whatever it’s calling a “budget” phone. The iPhone 5c generally sold poorly against the 5s. The iPhone 8 and 8 Plus weren’t as strong as the iPhone X. And it’s therefore possible that Apple’s only problem is that it’s selling more devices over $1,000 and fewer devices under $,1000 than it anticipated, which is to say that from the company’s perspective, it might not have a problem at all, or at least not much of one.

Without knowing more about which products people are choosing instead, it’s hard to say what conclusions we should draw. It’s one thing to decry the loss of the iPhone SE — it’s $350 price point represents a genuinely different market compared with these $750 phones — but the iPhone 8 Plus starts at $700 compared with $750 for the XR, while the iPhone 8 is a $600 device. I can believe that the form factor and price gap between the iPhone 8 and XR are big enough to capture two different groups of people, but it’s hard to imagine why people would be leaping for the iPhone 8 Plus versus the XR unless the price gap in other countries is larger than it is in the United States.

But while the specifics of the situation are still unclear, it does look as though the iPhone XR isn’t selling nearly as well as Apple predicted, and as if that will impact the company’s Q4 overall, even if it remains one of the richest and most successful corporations in America and at the top of the US phone market.

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