Apple's (AAPL) "pricing hubris" on its midrange iPhone XR was the main factor in the company's weak December-quarter sales, a Wall Street analyst says. Apple stock fell Monday.
XWedbush analyst Daniel Ives says Apple will need to cut pricing on the device to get back on track. In a report to clients, he said he expects "significant price cuts" on the iPhone XR in the coming months as the company course corrects, Ives says.
"As we have discussed with investors, it has been Apple's pricing hubris on iPhone XR that was the major factor in the company's December-quarter earnings debacle," he said. "While iPhone XS continues to be focused on premium price points, the linchpin on this upgrade cycle was XR within the China region representing roughly 20% of all iPhones in the window of an upgrade opportunity."
Roughly 750 million iPhones in use worldwide. Of those, Ives says about 350 million are candidates for upgrades over the next 12 to 18 months. That includes 60 million to 70 million iPhones in the Greater China region, Ives said.
Apple iPhone XR Faces Lower-Priced Rivals In China
"While some investors will fret around price cuts and what it means for top-line growth in the next few quarters and losing perception as a luxury smartphone, taking a step back it's all about the installed base for Apple," Ives said. The company monetizes its installed base by selling services and accessories to its users.
Apple has already begun lowering iPhone XR prices in China, Ives said.
Apple faces lower-priced competition in China from domestic smartphone brands such as Huawei and Xiaomi.
Ives reiterated his outperform rating on Apple stock with a 12-month price target of 200. Apple stock slumped 1.5% to 150 on the stock market today.
"It would be easy to throw in the white towel on the Apple story and declare the iPhone growth story is dead in the water after a historic decade-plus run that kicked off when Steve Jobs unveiled the iPhone in January 2007," Ives said.
The company faces a significant upgrade opportunity in its iPhone installed base, he said. That should occur over the next 12 to 18 months, Ives added.
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