False Alarm: iPhone X forecasts were just a wee bit off

by Uluroo — 3 May 2018

Apple recently announced its second-quarter financial results, and surprise, the company is not failing as epically as pundits said it was! Particularly in the case of the iPhone X, Apple outperformed the poor analyst expectations for the last quarter. Oh, well. Apple's got two more quarters to fail this year.

So what exactly was everyone wrong about? The main thing was the iPhone X and the assumption behind pretty much all analysis of it: the assumption that the iPhone X was about sales, not money. Pundits were falling over themselves to point out that sales were low, that sales were low, and also that sales were low.

First of all, the analyst predictions were wrong and wrong and also wrong. The iPhone X was the bestselling smartphone in Apple's lineup, and according to other reports, it's been making a mess of cash. It alone took 35% of the profit for the entire smartphone industry back in the fourth quarter of 2017. And it showed up on the market halfway through said quarter. Uluroo thinks of it the same way as ZDNet's Zach Whittaker:

Simply put, you can gripe about a $1,000 iPhone X and volume, but the device still prints money.

So, analysts, the message here is rather obvious: When you sell a device for more money, you don't need to sell as many of it. And maybe that was the point. In case anyone forgot, we knew as far back as 2016 that smartphone sales aren't going to keep growing forever. Not only is the market becoming saturated, consumers are keeping their phones for longer. So what is a a company to do? Let its revenue stagnate as sales level off and not increase the price of its devices? Of course not. The iPhone X is a strategic move: Apple doesn't need to worry about selling as many millions of iPhones if it's selling them for a grand each. Sure, the price might put off a lot of people, but they can buy the cheaper phones in Apple's lineup.

Smartphone sales are undeniably slowing down. Apple's cash pile is undeniably getting bigger at the same time. Seems pretty safe to Uluroo.

So no, the iPhone X was never about units.

Wait, but didn't the iPhone X fail Apple's own expectations? Well, Uluroo found himself nodding his head to the Macalope's way of dismantling this theory:

Let’s see if we can follow the logic of these rumors and the reaction to them without going insane.

A. Apple is drastically cutting iPhone X part orders because they wildly overestimated demand for a $999 smartphone. They thought that the same number of people who bought all iPhones in the same quarter the previous year would buy just the iPhone X this year. Sure, that scans.

So sales were fine, money was fine, and nothing was drastically overestimated. Okay, what's left to complain about? When one reads the tech press often enough, one discovers that there's always something, this time from Forbes' Ewan Spence, who mentions that the iPhone X "fails." Okay, why?

The problem with [Apple's] approach is becoming clearer every day. The iPhone X may be the best-selling iPhone in Apple’s current line-up, but when the competition is the tired and iterative iPhone 8 and iPhone 8 Plus, it’s not much of a challenge.

All right, so let's see if this checks out: Ewan points out that the iPhone X is the bestselling phone in Apple's lineup. Then he says that the two cheaper devices combined beat the $999 device (mind actually blown). And this is somehow a problem. Ewan is missing the point; we shouldn't look just at sales when they don't give us the complete picture. If the iPhone X were the same price as the iPhone 8 and 8 Plus, what Ewan is describing would actually be bad news. But when a thousand-dollar device makes 35% of the smartphone industry's profit, it's hard to complain without deliberately ignoring the numbers.

... but how long can Apple continue to push up the price of its handset, maintain the margins on revenue, and keep the community of iOS devices growing against the increasingly ascendant Android?

First of all, Apple is not going to keep pushing up the price without introducing cheaper models, as the current rumors suggest. Second, Apple is making the iPhone X SE or iPhone SE 2 or whatever you want to call it with cheaper parts so margins can stay balanced. Third, if the smartphone industry is slowing down, as data suggests, and if people generally don't switch platforms in large volume, as data also suggests, then the question isn't how much you can grow your sales. It's about how much money you can squeeze out of your users (which is pretty cynical but also very true). Fourth, what data does Ewan have to show that Android is "increasingly ascendant"? Android and iOS don't pose danger to one another's market share because once someone chooses a platform, they're pretty much locked in.

To recap, the iPhone X was never about selling as many units as possble. The logic behind it was that Apple could make more by selling fewer. And that plan was successful. Obviously Apple doesn't plan to continue increasing prices forever — that's why it's propagating the iPhone X's best features to the rest of the lineup. In the end, businesses are built on profit, not sales. Market share is one way to get money, but it's not the only way. Apple has proven that the iPhone X works. It was no flop. It outperformed expectations. And most importantly, it made a few bucks.

Not too shabby.