There are reports that Apple has pulled back plans for a major iPhone XR capacity boost, with Foxconn and Pegatron planning to deploy fewer manufacturing lines for Apple’s cheapest premium phone. Apple is instead apparently requesting more iPhone 8 and iPhone 8 Pluses, to the tune of 5 million additional units, for a total of 25 million older iPhone units requested for the quarter.
This news comes from Asia Nikkei Review, which also claims that Apple had asked Wistron to stand-by to fill orders as well, but has since indicated it will not be using any additional capacity for iPhone XR production. “The utilization for the XR production is not reaching its maximum capacity now,” Nikkei’s source stated.
Unsurprising (and Unverified)
Before we dive into this, I want to recommend caution where Apple and iPhones are concerned. Last year, we saw a number of stories from trusted publications claiming that Apple’s iPhone X had hit early production problems or that it wasn’t selling particularly well. The phone does appear to have ramped more slowly than some of Apple’s previous flagships, but it became the bestselling phone through much of the first half of 2018. Apple’s willingness to raise its prices across the board is a testament to just how strong a product the iPhone X was. Given the disparity between what we saw being said about the iPhone X last year and its 12-month performance, some caution is clearly warranted.
At the same time, however, Apple made major changes to its entire iPhone product line this year in a way it really hasn’t before. 2018 didn’t just bring higher base prices — it’s the first time Apple has skipped refreshing its small devices altogether. The company killed the iPhone SE without so much as an announcement. And if you liked smaller devices, the iPhone XR is actually the second-worst Apple phone to replace your old phone with — the iPhone XS is narrower, at 2.8 inches versus 2.98. The new product lines Apple has fielded are significantly different than the old, and it’s entirely possible that customers are still sorting out which devices they actually want to buy.
The success of the iPhone X and its positive impact on Apple’s MSRPs is proof that the company had margin to spare when it came to raising prices, but there were inevitably going to be customers left behind by such a move. It’s entirely possible that the reason Apple doesn’t need very many XR’s is that most customers are choosing the highest-end models or defaulting to the lower-end, cheaper products. With the iPhone SE canceled, I wouldn’t personally recommend anything above the iPhone 7, but I’m very much in the minority when it comes to device-size preferences and my refusal to pay more for a social-media-and-selfie-box than I’d pay for a full-fledged laptop. Most people don’t buy as I do. And ultimately, after Apple’s continued considerable success, I’m not willing to bet that the company got its customer read wrong this soon after the iPhone’s triple launch.
Cutting back on the XR could just mean the XS and XS Max are selling even better than Apple expected, and it’s ramping up some iPhone 8/8 Plus production to meet the needs of those who aren’t choosing to upgrade to the new paradigm just yet. If that’s true, we could easily see a new round of price hikes next year — Apple isn’t going to stop milking the revenue train until it sees a net profit decline, and its decision to stop reporting unit sales means analysts won’t be able to track whether the company is trading total sales for higher profits.
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