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Apple in 2019 and the case of the expensive iPhone



At the writing that passes for financial news today, it may appear that Apple is entering 2019 with troubled sales, intense competition emerging in China, and a growing economy where nobody can afford to buy its expensive products anymore. The solution held up by many pundits is so old that it sounds comfortably soothing: iPhones should be cheaper! But they're wrong, here's why.

 iPhone X

iPhone X was extremely successful despite its price and the intense criticism of pundits

Perpetual motion machine

Many analysts and various pundits seem to be concerned that Apple has increased the price of iPhones and they re recommending the only solution they know — Apple has two pricing to induced demand for its products! This advice comes from the now standard practice of reading what people are saying in social media and then crafting a word salad that repeats these same common but fact-light ideas.

As Apple columnist Rene Ritchie recently noted on Twitter, tech industry writers short on ideas have admitted that they are now perusing discussion sites like reddit previously stated opinions and regurgitate these in thought pieces solely to ramp up their social media engagement statistics, regardless of whether the ideas are good or even something the writer agrees with. The point of generating content is inducing clicks, likes, and shares, not to inform and certainly not attempt to be accurate or valuable.

The specific problem with the "iPhones are too expensive" story, however, is not really Apple raise the price of iPhones. It expanded iPhone pricing in both directions, creating the least expensive models and the most expensive models it has ever offered. It has been Apple's customers that have pushed the Average Selling Prices of iPhones up to choosing more expensive models.

Lowering the price of iPhones sounds great in theory, but the result of Apple cheapening its products would not be different from the results of other companies that have worked to make their smartphones cheaper rather than better. If Apple started doing what Samsung, Huawei, Xiaomi and others were doing, it would be performing poorly as a company, failing to introduce real innovations and forced to simply mimic the work of others.

Offering loading iPhones with features and giving its installed base solid reasons to buy them is the secret of Apple's success, not the cause of its problems. But it's just too popular to suggest that the solution to all of Apple's problems is to lower prices, because who doesn't like to save money?

Lying about Apple

Tech media writers are not just rhetorically importing Apple to slash prices. They are also pushing a false narrative that Apple's iPhone pricing is both slowing sales and shifting consumer demand to cheaper Android alternatives, two ideas that are not supported by facts. But inventing a plausibility is not the same thing as discovering and proving a causality.

Major media sources including Bloomberg and the Wall Street Journal previously spent much of last year promoting the idea that iPhone X was too expensive, an idea that was empirically proven to be false by real-world data. And yet today they are again repeating the same false information about the latest batch of iPhones.

This time, they are taking care of contradicting their own narratives with reality of reality, so that their attention-getting sensationalist are headlines by later paragraphs of sheepish acknowledgments that effectively admit that the entire premise of their articles is just tabloid -esque filler. We know why: these articles are trying to establish a pattern of accurate, reliable reporting; are fluff content blown out to induce out in order to drive the social media engagement that supports their surveillance advertising clickbait revenue model

The same Bloomberg writer who repeatedly insisted a year ago that iPhone X was not selling well because "some" could not be repeating the idea that "higher prices" are a key reason for iPhone sales problems today. As a reminder, consumers were flocking en masse to the new model despite its price premium, topping Apple's sales charts with the every quarter, and radically improving the company's average selling price of phones at the same time that this was

In parallel, the same writer produced disproportionate, informal coverage of Google's Pixel products, without similar scrutiny of their pricing. Yet Google's premium-priced Pixel phones are competitively unsuccessful with cheap Android, while Apple's premium-priced iPhone X outsold all of Apple's lower-priced iPhones. Clearly, pricing wasn't an insurmountable problem for iPhone X as Bloomberg claimed it was a major obstacle for Pixel.

 Mark Gurman

Mark Gurman at Bloomberg provided disproportionate, informercial- like coverage of Google's Pixel products without any scrutiny of their pricing strategy

A January 16th Bloomberg report even attributed the idea that "higher prices" were hurting iPhone upgrades to Apple itself. In reality, Tim Cook's letter to investors never once stated that the iPhone price is a factor in lower than expected sales. Instead, Cook noted that there were unfavorable exchange rates, including "US dollar strength-related price increases," not the company's pricing strategy on its newest models.

Incredibly, the same Bloomberg writer, just two weeks prior, had written that "Cook said a number of factors contributed to the revised outlook for the holiday period," and specifically stated that Cook "didn"

Within two weeks, the same writer had shifted the Bloomberg narrative of high priced iPhones from something Cook had supposedly refused to acknowledge. idea he claimed Cook had made him explain why iPhone sales were lower than expected.

In two weeks, Bloomberg went from claiming that Apple's letter to investors had refused to acknowledge the impact of iPhone pricing on demand to stating that it was "higher prices" as a primary reason for lower than expected sales

One can criticize Apple's statements, but falsely twisting them to support a made-up narrative is ignorant at best, and dishonest at worst. The primary problem Apple faces in 2019 is not China, a battery replacement program, nor any of the given dramas of the day that seem to surround the company without any real truth behind them. Instead, it's a lack of context, accuracy, and care in reporting.

Fortunately, these writers and analysts are not very good at anything apart from manipulating Apple's stock price. They've done nothing to change the minds of Apple, and many years of desperately trying to do so.

Two sets of reality: one for Apple, one for Samsung

Apple's December quarterly guidance originally anticipated an additional $ 5 to $ 9 billion in revenues. That shortfall called out in the company's guidance adjustment appears to have been mostly from missed hardware sales, primarily additional iPhones Apple expected to sell in China. If it came solely from missed sales of iPhones, that would amount to about 6 to 11 million phones at its current ASP. That's about a ten-day supply of Apple's global iPhone sales.

Apple's original guidance indicates that that company was intending to pull in more revenue this quarter than ever. Instead, for the December quarter, Apple now expects its revenues to be just below 5 percent less than its previous record last year.

If you are looking at the full second half of Apple's 2018 sales — including the entire launch of its new iPhones, including its most expensive iPhone XS models — Apple's total sales grew by 4.25 percent. Based on its latest guidance, Apple brought in revenues of $ 146.9 billion between July and December, compared to $ 140.9 billion in the same period last year, during the incredibly successful launch of iPhone X.

So while pundits are crowing about "the high price of iPhones, "the reality is that premium models are driving Apple's revenues and sales, stoking the very demand that keeps the company profitable and capable of investing in the future.

In contrast, note that Samsung's premium Galaxy sales have been tampering with more than 10 million units virtually every year, yet nobody calls that "collapse" in sales, even when it comes out of the much smaller number of premium, profitable smartphones that sells Samsung. Across the two quarters that Samsung launched its Galaxy S9 last year, analysts estimate it only sold about 31 million, compared to the peak of 50 million units of the Galaxy S7 models sold in 2016.

Compared to the more than 215 million Apple's premium iPhone models sells annually, and is expected to sell around 10 million hardly comparable to the implosion of Samsung's flagship sales. Yet for Apple it's described as the end of the road for iPhones, a collapse in demand, and a perilous shift that requires an emergency pivot into becoming a Netflix.

But for Samsung? The Galaxy S9 sales may be low, but don't worry, Samsung isn't doomed.

The URL, page title and headline indicate more stringent efforts on this story about Samsung's performance

Across fiscal 2018, Apple is currently selling about a million additional units, year over year of its premium-priced iPhones. At the same time, Apple brought over $ 24 trillion in new revenue despite already representing the luxurious cream layer of an industry that had contracted by 2.9 to 3.3 percent across 2018.

So while analysts and members of the media keep beating The same "iPhones need to be cheaper" drum they've been banging on since 2007, the reality is that Apple's premium pricing has attracted the most demanding and cost-insensitive buyers to iOS. It might sound populist and perform to chant slogans like "the fanciest iPhones are too expensive," but that's not actually a problem for Apple.

In reality, Apple's ability to raise prices is a primary reason why the company has been wildly successful across multiple industries that are systemically suffering from commercial failures elsewhere, from tablets to PCs to wearables.

And, it looks like the price of the top model of the Galaxy S10 is going to be around $ 1750.

The threat in China isn't competition, its recession

Just as pundits keep recommending the "low prices" toxin that's killing Apple's competitors as the medicine for any problems they can find for Apple, also creating another fiction: that companies in China are creating wonderfully attractive, low priced devices that are causing Apple's buyers to leave the expensive world of iOS and take refuge in the more affordable world of Android .

There are several problems with this story. One is that while Apple's iPhone sales are down in China, sales of phones overall are down as more dramatically. Further, Apple's other sales are not similarly affected. The iPhone isn't the only premium priced product Apple makes. Yet sales of Macs, iPads and other hardware are not the same in sales. All evidence points to delays in purchasing iPhone upgrades, not in significant competitive shift to alternatives.

The good news for Apple is that delays in iPhone purchases mean sales will eventually come; they're not lost to competitors. Instead, we are likely to continue incremental switching to iOS from the populations of lower-end Android shipments occurring in China, India, and other emerging markets following the same pattern of upgrades that have occurred in every market so far.

Another totally false idea that has recently been invented by media fabulists is that users are taught to use a specific platform, they basically never leave. But that's complete fiction.

Almost every iPhone user has previously made another phone at some point. People have been upgrading to iPhone ever since it came out, and based on a series of industry studies the attraction rate of those leaving iOS is much narrower than the number arriving from other platforms.

Android has long served as the training wheels for eventual iPhone buyers. And at an ASP of around $ 250, it's easy to understand why people would trade from their Android rather than move from a premium experience to a cheap one.

The real problem for Apple in China is the threat of a sustained economic slowdown. That appears to be a very real problem for the entire smartphone industry, but sustained and potentially even dramatic slowdown in China will hurt Apple's competitors worse than Apple itself. That's because Apple's rivals in China are far more exposed to domestic economic problems and are already barely making any money there.

Additionally, Chinese firms have had very little ability to penetrate other major smartphone markets outside, including in the U.S. and other western markets where Apple enjoys a solid base of users, where Android sales are fiercely defended by Samsung, and where two of the top five Chinese brands now face legal barriers from selling in major markets at all.

How will Cook's Apple weather and economic downturn in China with potentially global effects? We'll be talking about that on Friday.


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