Apple's iPhone XR Problem

Hi guys, I'm Greg from Apple. And in this video we will cover some of the

problem

s that Apple had with its iPhone XR. Because the company expected it to be one of the best-selling iPhone models of all time, but it has become clear that that is not the case at all. And Apple has been acting very aggressively to remedy the lack of demand. This topic was the first place winner in last week's voting poll, and if you want to vote for the next video topic, don't forget to subscribe. That way, the polls will appear directly in your mobile activity feed and you can tell me which video you would like to see next.

Now, before the iPhone XR and XS were unveiled in September, Apple was enjoying the tremendous success of its iPhone to iPhone X, One of the biggest ones is its high price. Because at a price of a thousand dollars it was the most expensive iPhone ever sold and many analysts believed that this would hinder sales of the model. But Apple proved them wrong and sold more iPhones in 2017 than the year before. So when it came to the iPhone XS and XR, Apple assumed they had a winning combination on their hands. Especially since they were offering a budget iPhone that featured an even larger edge-to-edge screen than the X.

And it came in colors! So why wouldn't the affordable, attractive and feature-packed iPhone XR sell like hot cakes? Well, there has to be at least one reason, because to Apple's surprise, the XR didn't perform as well as they expected. And this has contributed to a number of

problem

s for the company. Like falling stock prices, criticism from analysts, and frustration from suppliers. So, let's take this story step by step and find out why the iPhone XR became one of the only models that did not live up to Apple's expectations. It all started on October 19, 2018. The day Apple started pre-ordering the iPhone XR.

You see, pre-order day for any new iPhone is always highly anticipated, with millions of people around the world eager to be the first to submit their order on Apple's website. Because typically what happens is, within hours, iPhone shipping time starts to slow down as all the pre-orders arrive. But that didn't happen with the iPhone XR. In fact, it took four days of pre-orders before shipping delays occurred. And one of the reasons for this is that initial demand for the XR was not as high as Apple expected. But there could have been another reason, perhaps Apple intentionally ordered more iPhones than usual to avoid delays in shipping as many pre-orders as possible.

And while this may be true, events that would unfold later suggest otherwise. Because just a few days after the XR went on sale, Tim Cook moved marketing staff from other projects to work on boosting sales of the new iPhones. And one insider called this change a “fire drill,” which certainly suggests that the iPhone XR was selling below Apple's expectations. And the work of the newly assigned marketing team became immediately visible. With Apple partnering with The Ellen Show for the first time, giving away a free iPhone XR to every audience member. But when it came to the Black Friday promotion, Apple wasn't so generous.

Only offer gift cards up to $50 if you purchased a previous generation Apple device. But the company obviously felt much more generous when it came to the iPhone XR. Since they offered a discount of up to $300 when you trade in your existing iPhone. And that's something I want to talk about in more detail. Because while Apple has had an iPhone trade-in program for years, it never promoted it as aggressively as with the XR. It's the first thing to appear on Apple's homepage and is even displayed on a sign inside Apple stores across the country. And this is very uncharacteristic of Apple, which generally never runs sales or promotions on any of its products, and this is especially true when it comes to the iPhone.

Because demand for the latest model is often so high that Apple can simply set its price and never lower it until an updated model takes its place. But that's not the case this year. The fact that Apple is promoting the iPhone XR at its potential trade-in price of $450 really shows how desperate they are to generate interest in the new model. And to top it all off, Apple indirectly lowered the price of the iPhone XR in Japan through carrier subsidies. Therefore, Docomo customers will effectively save $100 with a 24-month contract. And that's a move we've never seen before from Apple.

Now I can't help but think that if the But it seems that all the marketing and promotion didn't have much effect on iPhone sales. Because two months after its launch, Apple canceled a production increase they had scheduled for the iPhone XR. You see, the company had originally planned to increase the number of assembly lines for the XR before the holiday season. But in reality they did exactly the opposite. Reduce their production lines from 60 to 45. A 25% manufacturing drop right before the holidays, which is definitely saying something. Now I should mention that there were reports claiming that the cancellation of the iPhone instead of keeping production stable.

Now, news about the lackluster sales of the iPhone XR really hit Apple's stock price. But this was not the only thing that scared investors. Because on November 1, Apple announced that it would stop reporting unit sales for all of its products. Something that many experts believed was influenced by the disappointing sales of the iPhone XR. And as a result, Apple's stock price saw a sharp drop in early November. And while it's true that the US economy as a whole began to decline around this time, the negative press surrounding Apple only accelerated its downward trend. But the financial burden of slowing iPhone sales spread to companies beyond Apple.

Because if you think about it, all the suppliers that supply the iPhone with different components also suffered the consequences of lower than expected sales. In fact, many display and chip makers complained that their largest customer cut orders, and after a second phase of order reductions in late November, supplier Largan Precision saw a drop in revenue and reportedly Printed circuit board supplier Career Technology reportedly laid off 110 workers. To cope with order cuts by Apple, Lumentum Holdings, the main supplier of the iPhone's Face ID system, anticipated a revenue loss of $70 million; while display maker Japan Display also lost revenue and reported lower-than-expected demand for the new iPhone.

But probably the most telling sign that Apple got ahead of itself with the new iPhone XR is when you consider the state of its inventory. Now Tim Cook is known for being one of the best inventory managers in the industry. In fact, he was hired by Apple in 1998 because of his experience in just-in-time manufacturing, and because of his experience, Apple has been very good at minimizing the amount of money they have invested in non-inventory. sold. Because, as you can imagine, it's not very profitable to have millions of unsold iPhones on the shelves of Apple stores across the country.

And typically, the iPhone has almost always had a healthy sales rate, with inventory buildup of about 1 to 2 days. But iPhone XR supply is reportedly already inflated to more than three days of inventory. Therefore, it makes sense that Apple is cutting back on manufacturing of the model, as demand is clearly lower than initially estimated. Now I should mention that this is not the first time Apple has overestimated the sales potential of a new iPhone model. Because in 2013 Apple made similar production cuts to its iPhone 5c, and Tim Cook later admitted that they had an overstock of the model, as the sales ratio between the 5s and 5c was much wider than expected.

So when you consider the low number of pre-orders, production cuts, aggressive promotions, and supplier layoffs, you begin to understand why the iPhone XR has been such a big problem for Apple. There just isn't as much demand as the company expected and now they're wondering why. And I think there are a variety of factors at play. First of all, the iPhone X already sold very well just a year ago. And remember, it was a $1,000 device. So I don't think many of those customers are looking to spend another thousand dollars on a new iPhone with virtually zero improvements.

And that's something else to consider: I know plenty of people who bought a used iPhone X instead of a new iPhone XR. Because you get a higher quality display, camera system, and design at a lower price. So, you could argue that the iPhone clients with a limited budget. new, as the 8 starts at just $600, 20% less than the XR. That's not to say the iPhone XR isn't a good device. I think it's the best budget phone Apple has ever made. The problem is that it's hard to call it a budget phone when it's priced $100 more than the flagship iPhone 7 released just two years ago.

And I think Apple understands this, their problem is that the smartphone market is saturated and they need to raise prices to combat slowing iPhone sales. After all, the iPhone accounts for almost 60% of Apple's total revenue, with services coming in second at around 16%. So it's clear that Apple is trying to keep the average selling price of iPhones as high as possible, I'm just afraid the days of truly affordable budget iPhones died in September with the iPhone SE being discontinued. That's the problem with Apple's iPhone XR, and if you want to vote for the next video topic, don't forget to subscribe.

Thanks for watching and see you next time.