Apple has lowered its production target for its three new iPhone models in the first quarter of 2019 by about 10%, according to Japanese business daily Nikkei. Apple asked its suppliers at the end of December to produce fewer copies of its iPhone XS, XS Max and XR, compared to what was previously planned, the newspaper said. The news is not surprising.
Last week, the stock had plunged nearly 10% after the publication of an earnings warning, the first since the launch of the iPhone in 2007. According to the Nikkei, the production cut was requested before the publication of the lowered sales forecast for the last quarter of 2018, the first of its off-year.
The decline was driven by China
“100% of the year-over-year revenue decline is attributable to Greater China,” Tim Cook said in his warning letter to investors. While Tim Cook has just given himself a very nice salary increase, he blames the deterioration of U.S.-Chinese relations for this collapse. But if the economic war between the two countries triggered by Donald Trump is a reality, it is not enough to explain the relative disaffection of the Chinese for Apple. Quick reminder. In 2012, China accounted for 22% of Apple’s revenue. According to the latest available data, it now accounts for only 18% and this percentage could be even lower for the last three months of 2018.
Among the reasons for disaffection, we can incriminate the decision to remove VPNs from the applications offered in the App Store. Yet the VPN is widely used to bypass the restrictions on internet traffic imposed by Beijing. By losing this possibility, iPhones have lost a lot of their appeal, especially to the younger generation.
Prices are too high
But Apple is also suffering the consequences of its pricing policy. The latest version of the iPhone, the XS Max is sold at more than 1099 dollars, a dissuasive price while competitors such as Huawei, Xiaomi or Lenovo offer technologically comparable products at prices nearly half as expensive.
According to Canalys, smartphone sales in China, the world’s largest market, fell by 12% last year and it predicts a further 3% decline this year, which would take them below 400 million for the first time since 2014. For its part, the Nikkei estimates that overall iPhone production volume for all models will be in the range of 40 to 43 million units in the January-March period, compared with a previous forecast of 47 to 48 million. There are other threats to the group.
The most recent iPhone models could be banned from sale in China because of a dispute between Qualcomm and the American giant due to a possible infringement of intellectual property of the latter on the former. Finally, Apple may not be able to offer a 5G phone before 2020, while Huawei, Xiaomi or Samsung could launch products as early as this year.