The iPhone X could be a problem for Apple

Technology Editor
Yahoo Finance

Apple (AAPL) is scheduled to report its Q2 2018 earnings on Tuesday May 1, and all eyes will be on iPhone sales and average selling price (ASP). Apple’s stock price has taken a hit in recent weeks, as reports point to lower demand for the iPhone X.

Those reports come as Taiwan Semiconductor Manufacturing, which makes chips for iPhones, reported lower than expected guidance for the next quarter. Lower than expected guidance could mean that Apple is seeing decreased demand for the iPhone X, iPhone 8 and iPhone 8 Plus. And since iPhone sales still make up the bulk of Apple’s revenue, any hit to that could be a problem for the tech giant.

The iPhone X impact

When Apple debuted the iPhone X in 2017, it took a major leap of faith by pricing the base version of the handset at a staggering $999, $200 more than the iPhone 8 Plus. And while X brought along improvements to its display thanks to a new OLED panel, facial recognition technology and an upgraded camera, such a high price had the chance of turning off consumers entirely.

Apple also made the unusual move of debuting the X alongside the iPhone 8 and 8 Plus. Usually the company only announces two new iPhones at a time. What’s more, the iPhone X’s lack of a Home button seemed to be a sticking point for a number of consumers.

Apple CEO Tim Cook at the debut of the company’s new iPad in Chicago. (Image: Reuters/John Gress)
Apple CEO Tim Cook at the debut of the company’s new iPad in Chicago. (Image: Reuters/John Gress)

Pair that with the fact that the iPhone 8 and 8 Plus featured relatively few big changes from the iPhone 7 and 7 Plus, and you can begin to understand why analysts and investors are on edge.

“I don’t think the X is doing as well as [Apple] would have hoped,” explained Gartner personal technology analyst Tuong Nguyen.

“The reason I believe that is based on a lot of the rumors I’ve been reading about what they’re planning for the next iteration [of the iPhone] later this year. They might be considering bringing back the Home button and lowering the price to make it more palatable.”

Nguyen said he believes that while Apple has been able to steadily introduce new devices at slightly higher price points, $999 is too high for consumers to justify spending on a smartphone — especially one that doesn’t change the market as monumentally as the original iPhone did.

The best way to determine how well Apple’s iPhone X is selling is to watch for the iPhone’s ASP. A higher average selling price could mean that consumers did indeed opt for the high-priced iPhone X. A lower average selling price, though, would mean that fewer consumers spent their money on the X and instead went for the iPhone 8, 8 Plus or previous generation models like the 7 and 7 Plus, 6s and 6s plus or SE.

The China question

At one point China was going to be Apple’s next big playground thanks to the country’s growing middle class and a love for new tech. But don’t expect the company to post major gains in the region, according to UBS analyst Steven Milunovich. That’s because China has quickly become saturated with high-end smartphones from homegrown companies like Huawei.

What’s more, as Milunovich points out in an analyst note, smaller cities outside of the country’s major population centers are unlikely to choose Apple’s devices, especially older models, as consumers can instead buy Chinese-made smartphones with more advanced features at similar price points.

Services will be king

There’s never been a doubt that the global smartphone market would hit a point of complete saturation, slowing iPhone growth. But to offset that, Apple has been investing heavily in its services through products like iCloud and Apple Music. It’s there that the company should continue to see growth and how it can really stand out until the next major piece of personal technology comes along.

Of course, Apple has some incredibly stiff competition in the form of Google’s (GOOG, GOOGL) and Amazon’s (AMZN) consumer cloud businesses and Spotify’s (SPOT) music streaming service. But if the company can provide customers with enough incentive to choose Apple products over its competitors, its services business could be a huge bright spot for in the coming years.

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Email Daniel Howley at dhowley@oath.com; follow him on Twitter at @DanielHowley.

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