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Apple’s iPhone launch is not going according to plan

by David Gilbert
Sep 28 2017, 12:09pm

At 6 a.m. on September 22, dozens of security guards arrived at the Apple store in the Chinese city of Hangzhou, quickly setting up a maze of barriers to contain the crowds eager to buy Apple’s new iPhone 8. Two hours later, when the doors finally opened, just two people were waiting.

The Apple store in Hangzhou wasn’t the only shop to see such underwhelming launch-day demand – such scenes were repeated around the world. And this gloomy picture, coupled with reportedly sluggish sales, sparked a downturn in Apple’s share price.

Some observers were more optimistic about Apple’s business model, pointing out that customers might just be waiting for the launch of the more expensive iPhone X, which goes on sale in November. But then came reports of production problems with the iPhone X, and now analysts are beginning to worry that Apple may have a big iPhone problem.

Following a dramatic slowdown in smartphone sales growth in recent years, analysts had been predicting what’s known as a supercycle – where iPhone owners who’ve been holding out on upgrading all at once decide to buy a new phone. It last happened when Apple launched the iPhone 6 three years ago.

Now, rather than the expected supercycle, some analysts say we could actually see a fall in sales this quarter.

“The key point is, if Apple is unable to meet a good chunk of demand for the iPhone X in the December quarter, that could well see Apple have a year-on-year drop in iPhone sales in the quarter,” Jan Dawson, an industry analyst with Jackdaw Research, told VICE News.

Read: You won’t be able to buy Apple’s iPhone X

Apple launched three new smartphones earlier in September. The iPhone 8 and iPhone 8 Plus are iterations of a design which has been around since the launch of the iPhone 6, and while reviews of the new phone were not scathing, they were certainly far from enthusiastic.

This was mirrored by reports from a number of sources which said sales in key markets like China and the U.S. were weaker than expected. This week Citi Research lowered its earnings and sales estimates for Apple’s September quarter, predicting lower-than-expected demand for the iPhone 8.

Analysts with CounterPoint Research in Beijing told VICE News that it was seeing similar patterns in China, and that “the response is much more muted than expected.”

Apple has not commented on the reports, but unlike previous years when it has published bombastic press releases reporting record sales of its new phones, the company has remained tight-lipped about sales of the iPhone 8.

Waiting for the iPhone X

That may because, like many other people, Apple is waiting for the iPhone X to drop — but it now appears the wait for the new phone could be longer than expected.

Even before the iPhone X was officially unveiled, reports predicted it would be in short supply due to complications with the phone’s headline feature — the large edge-to-edge OLED display. Last week, DigiTimes reported that Apple suppliers were shipping just 40 percent of the components originally ordered for the premium phone.

On Wednesday, the Wall Street Journal claimed the company was having difficulty quickly assembling modules that form part of the iPhone X’s Face ID facial-scanning feature. A new report from reliable Apple analyst Ming-Chi Kuo suggests the delays could mean the iPhone X won’t be easily available in many regions until Spring 2018.

Pent-up demand

There is likely to be huge demand for the iPhone X, particularly in markets less sensitive to the $1,000 price tag. Chief among these markets is China, which was a huge area of growth for Apple a few years ago, but which has now slowed significantly.

“It would not surprise me if, in China in particular, consumers were waiting for iPhone X,” Carolina Milanesi, a consumer tech analyst at Creative Strategies told VICE News. “It is such a status symbol there, that people want the best.”

But even in China, where having the latest iPhone is closely tied to your social standing, the high price tag could be just too much. “I feel X is beyond the reach of many iPhone users,” Neil Shah, a partner at CounterPoint Research told VICE News.

Apple’s deep integration of hardware, software, and services means that many veteran iPhone users are tied into the company’s eco-system, having invested a lot of time and money in the likes of iMessage, iTunes, and Apple Music. This means they are reticent to switch to an Android smartphone, even when hardware from rival companies equals if not betters Apple’s offering.

Read: Why Apple thinks it can get away with a $1000 iPhone

In China however, that’s not the case, and consumers are switching from Apple to other manufacturers. “Chinese consumers are knee deep using local services and apps like WeChat, QQ or Tencent Music, Ali Pay and so forth – spending a great share of digital lives in non-Apple ecosystem other than hardware,” Shah said. “As a result this nullifies Apple’s ecosystem stickiness, and makes the user not get locked-in.”

This trend can be seen in the rise of homegrown brands like Oppo, Vivo, and Huawei which now dominate sales in China.

In markets like the US, the number of people who switch from iOS to Android is small, but not being able to buy the most expensive iPhone will still be a problem. “I think the biggest risks are switching to other iPhones, notably the iPhone 8, and holding back on making a purchase,” Dawson said. “Neither of those is ideal for Apple.”

Without knowing the full extent of the issues facing Apple with the launch of the iPhone X, and the actual iPhone 8, it is hard to predict the exact impact on Apple’s bottom line, but as Dawson points out, the company is likely trying to figure this out itself. “There are just so many variables at play here, and even Apple likely has a poor sense of how it’s all going to play out at this point.”