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The Nikkei Asian Review wrote on January 29 and February 20 that Apple was “slashing” production of the iPhone X from 40 million to 20 million units for the March quarter. These made it appear that the iPhone’s March quarter demand was declining more than it usually does from the December quarter and that the X’s sales were disappointing. When you work through the numbers and compare them to previous March quarter’s new products, it shows that 20 million X’s is more in-line with historical results. (Note that I own Apple shares).
The January 29 article helped Apple’s stock price fall over $3 from $171.51 to $167.96. The company’s March quarter guidance didn’t help a few days later, since expectations for an iPhone super-cycle were still in play, with the shares falling to $160.50 the day after its December quarter results were released. With the shares closing at $176.21 on Friday they have regained all the downside.
Production of 30 million other iPhones seems to have been overlooked
The Nikkei Asian Review January 29 article said, “Apple will slash its production target for the iPhone X in the three-month period from January by half from the more than 40 million units envisaged at the time of its release in November. The U.S. tech giant notified suppliers that it had decided to cut the first-quarter production target to around 20 million units.”
Towards the end of the same article it included “Apple is expected to maintain a total production target of 30 million units for lower-priced models such as the iPhone 8 and 8 Plus.” At a total of 50 million this would be a 35% decline from the December quarter’s iPhone unit sales of 77.3 million. In the last two years the sequential decline has been 32% and 35%, respectively, therefore a 35% decline isn’t out of line.
iPhone 8 launch seems to be “forgotten” by investors
The fall of 2017 was the first time that Apple launched three new iPhones. Overall the iPhone 8 and 8 Plus did well and helped contribute to iPhone unit sales increasing over 6% year over year on a weekly basis.
CIRP, or the Consumer Intelligence Research Partners, estimates that the iPhone 8 and 8 Plus accounted for 24% and 17% of U.S. iPhone sales in the December quarter. At 41% they were double CIRP’s estimate for the iPhone X’s 20%. They also had slightly higher ASPs, or average selling prices, than the the iPhone 7 and 7 Plus which helped increase the total iPhone’s ASP from $696 to $797, up $101 per iPhone, year over year.
Josh Lowitz, CIRP Partner and Co-Founder said, “At 61%, the three newest iPhone models together represented a somewhat smaller share of total US iPhone sales in the quarter, compared to 72% for the iPhone 7 and 7 Plus a year ago.” He added, “Yet, comparisons to earlier launches are tricky at best. First, iPhone X wasn’t available for the full quarter. The Apple model pie is further divided, as they now offer eight models, the most ever. And, Apple launched the new phones on a different schedule, announcing three new models at once, but delaying the launch of the most advanced and expensive one, iPhone X, for five weeks following the launch of iPhone 8 and 8 Plus.”
What iPhone units is Apple expecting for the March quarter
Apple doesn’t provide detailed iPhone guidance but it can be estimated since we have historical seasonality revenue, unit and ASP changes to the its various product lines. When you work through the various calculations Apple is expecting about 53 million iPhone’s to be sold in the March quarter. This is lower than what analysts were looking for in a super-cycle, but it aligns with historical declines of the past three years.
iPhone X was never destined to be Apple’s largest seller, at least in units
CIRP has been tracking U.S. sales of iPhone’s for a number of years based on a survey of 500 U.S. Apple customers. Below are the March quarter estimates for the past three years and the percentage unit sales of the newest iPhones. The numbers show that the latest iPhones have accounted for a declining percentage of sales each year.
March 2015 quarter: 4 models (5c, 5s, 6 & 6 Plus)
- iPhone 6: 56%
- iPhone 6 Plus: 22%
- Total: 78%
March 2016 quarter: 5 models (5s, 6, 6 Plus, 6s & 6s Plus)
- iPhone 6s: 43%
- iPhone 6s Plus: 28%
- Total: 71%
March 2017 quarter: 5 models (SE, 6s, 6s Plus, 7 & 7s Plus)
- iPhone 7: 35%
- iPhone 7 Plus: 33%
- Total: 68%
CIRP estimates that the iPhone X accounted for 20% of the iPhone’s U.S. December quarter sales. If Apple does sell 20 million iPhones in the March quarter they will be 40% of total unit sales assuming that 50 million iPhones are sold. Combine that with the 30 million for the iPhone 8 and 8 Plus and it would be 100% of unit sales. This is another indication that 40 million X’s in the quarter was never a realistic production number.
December 2017 quarter: 8 models (SE, 6s, 6s Plus, 7, 7s Plus, 8, 8 Plus & X)
- iPhone 8: 24%
- iPhone 8 Plus: 17%
- iPhone X: 20%
- Total: 61%
Apple covering its bases
Unfortunately for Apple’s suppliers they are pretty much at the mercy of Apple. It may have ordered or indicated that it may need 40 million iPhone X’s for the March quarter. If that were the case the company would be selling so many more iPhones than it would normally sell it would pretty much be mind boggling, since there are also 7 other models for sale.
The bottom line
The bottom line is that the iPhone X was never going to sell 40 million X’s in the March quarter and 20 million is pretty much in-line with historical trends. And even at 20 million X’s Apple should still dominate the smartphone profit pool.
