Apple Inc.’s (NASDAQ:AAPL) iPhone X has had a rougher than expected ride. It’s suffered a delayed launch, complaints about its high price and persistent reports of lower than expected iPhone X sales. The results have hit AAPL stock, instead of providing an expected boost.
Now an analyst who has been closely following Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) is reading the tea leaves on that company’s record oversupply of chips. And he says all signs point to Apple to walking away, selling off whatever inventory of the flagship iPhone X it has remaining, but not producing new phones.
But Neil Campling hasn’t just proclaimed the iPhone X “dead.” He also suggests that consumer pushback against a smartphone starting at $999 will lead Apple to abandon that price point, with cheaper replacements for 2018.
Have Poor iPhone X Sales Doomed AAPL’s Flagship Smartphone?
CNBC first reported on an investor note from Mirabaud Securities’ analyst Neil Campling. Having closely followed TSMC for more than decade, he discovered that the Taiwanese supplier of iPhone chips had hit record inventory levels. TSMC stock closed down 6.3% on Friday after lowering its full year revenue forecast.
The conclusion? Mr. Campling wrote:
“With the declines in iPhone X orders and the inventory issue at TSMC at record highs, which basically reflect a need to burn off inventory. Why? Because the iPhone X is dead.”
He goes on to suggest that with consumers refusing to fork over money for high priced smartphones, iPhone X sales are never going to meet expectations.
“The simple problem with X is that it is too expensive. Consumers are turning their backs on high-priced smartphones.”
To avoid a repeat of the current situation with low iPhone X sales, he predicts Apple will launch lower priced replacement iPhones this fall. The company will continue selling the stockpiled inventory of its flagship, but won’t make any more. If so, the iPhone X is dead indeed.
A Reality Check…
It makes for an interesting narrative. But the idea that poor iPhone X sales have doomed Apple’s flagship smartphone — and scared AAPL away from the ultra premium market altogether — seems far fetched.
There’s no disputing the fact that TSMC has a glut of unsold inventory. But as AppleInsider points out, TSMC has other clients besides Apple, so fingering the iPhone X as the source of the glut may not be entirely accurate.
And while iPhone X sales may not be as high as expected, recent industry data shows that Apple’s $999+ smartphone dominated smartphone profits in Q4. That one model —the smartphone that Mr. Campling says is “dead”– took in 35% of the profit for the entire industry in the past quarter.
Apple may not have sold as many iPhone X units as hoped for — and there are reports from other suppliers including OLED display maker Samsung that support this. But it is doubtful Apple has so many unsold iPhone X boxes piled up in warehouses that it could stop producing new ones through September.
Campling’s conclusion that Apple will not only kill the iPhone X, but walk away from the ultra premium market altogether also has flaws.
Q4 marked the first ever decline in global smartphone sales. With a market that’s approaching saturation, the demand for cheap smartphones has begun to dry up. Consumers are trading up, looking for more premium features. In that kind of market — where record iPhone sales can no longer be relied on to propel AAPL stock — sheer volume is no longer the critical factor. Instead, the average sales price (ASP) per unit becomes more important. And with a starting price of $999, the iPhone X ASP means Apple was able to boost iPhone revenue by double digits last quarter, despite lower sales.
The iPhone X also competes against other premium smartphones that have entered that price range, including Samsung’s $950 Galaxy Note 8.
The Bottom Line for the iPhone X
Don’t expect Apple to abandon that ultra premium market. No-one knows for certain what Apple is planning for 2018, but the smart money right now is on a less expensive LCD-based iPhone X lookalike, a new version of the iPhone X and an iPhone X Plus — that’s likely to either hit that same $999 starting price, or go even higher.
AppleInsider suggests that come September, AAPL may discontinue the current iPhone X. Instead, Apple would make iPhone 8 its new entry option. That seems the more likely scenario. In which case the iPhone X isn’t “dead” so much as it may be a one-year model.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.