Apple iPhone X strategy stumbles but higher prices likely kept sales afloat

LOS ANGELES — Apple's experiment to launch three new phones for the holiday quarter doesn't appear to be a hit, at least in terms of number of phones sold. But higher prices mean Apple and its investors could still sit pretty. 

On paper, the iPhone X, Apple's most-expensive phone ever, looks to be a bust. The megahyped, redesigned phone, initially short on supply when released in November, now has more units available than consumers want to buy.

According to reports by Japan's Nikkei and The Wall Street Journal, Apple has ordered its suppliers to cut production of the phone by half for the current quarter, to 20 million units. Apple did not respond to requests for comment. Some of those cuts may be seasonal, part of a regular post-holiday pullback.

Overall, the company, which announces fiscal first-quarter earnings late Thursday, is expected to show higher revenue for the December quarter: $87.4 billion, up 11% from the year-ago quarter, according to S&P Global Market Intelligence. Higher prices are making up for the declining customer base for new phones, according to one analyst.

Consumers should "expect higher-priced devices in the years to come," says CFRA Research analyst Angelo Zino. He sees prices overall on iPhones later this year to rise 8%. 

Apple introduced the 8 and 8 Plus phones in September, followed in November by the iPhone X, the first to have a major redesign since 2014. The company is expected to show a slight uptick in iPhone shipments —79 million, up 0.9% from a year ago, according to the analyst consensus. More than two-thirds of its revenue will come from iPhone.

Worrying analysts now are the reports from Asia about the iPhone X cutback for the three months ended in March as a signal that consumers weren't as interested as anticipated in the top-end phone.  

Limited interest in China is behind cooler iPhone X sales expected for the current quarter, says Daniel Ives, an analyst with GBH Research. China represents 25% to 30% of Apple inventory sales, he says. 

"It's clear Apple is not going to capture the demand," it thought it would have for the iPhone X, he adds. 

The big question Thursday for Apple executives is the outlook for the first three months of this year, the first full quarter customers could buy iPhone X. Ives expects Apple to dance around the issue of production cutbacks within the guidance it gives, which itself will answer the question.

"The Band-Aid will be ripped off," he says. "There's a lot of fears right now, and the Street is in panic mode."

For the December quarter, analysts forecast earnings per share of $3.84, up from $3.36 a year ago. 

Apple (AAPL) shares fell less than 1% to $166.97 Tuesday. They're down 7% since Thursday but still up 37% for the last 12 months. 

Apple CEO Tim Cook may also get quizzed about two other big announcements that took place since Apple's last earnings call: its mammoth tax repatriation and re-investment plans and a public relations debacle after it admitted it had installed software in many phones to prevent unexpected shutdowns. 

Earlier this month, as a result of the Republican tax bill, Apple said it would take advantage of a one-year window to repatriate most of its overseas earnings at a lower tax rate, incurring a tax bill of $38 billion. It said it would invest some of its savings from the reduced tax rate — an estimated $42 billion, according to analysts — in U.S. infrastructure, including a new campus. It hasn't said where.  

Cook may also be asked about "batterygate." According to a Tuesday Bloomberg report, both the U.S. Department of Justice and the Securities and Exchange Commission are looking at how Apple handled its then secret software update that slowed older iPhones. In the wake of consumer outrage, Apple has offered to exchange batteries on older phones for a discount. Apple did not respond to a request for comment on the probe. 

Apple likely ended  2017 with its best overall iPhone unit sales ever, Ives notes, with sales of 240 million iPhones, up from 211 million in 2016. Apple's best-ever year had been 2015, which it sold 231 million iPhones. 

Ives expects Apple to continue its strategy of releasing three new phones in the fall, two with the shape and specs of the iPhone X, and a smaller, less expensive model to replace the iPhone 8. 

Follow USA TODAY's Jefferson Graham on Twitter, @jeffersongraham