Apple’s latest – and disappointing – iPhone product unveiling also revealed the two biggest headaches troubling CEO Tim Cook today: first is the lack of a new “must have” gadget (Apple watch EKG aside), with the iPhone failing to impress the faithful for the second year in a row, and prompting sellside analysts to conclude that for one more year there won’t be a “must have” iPhone supercycle. Second is that as a result of this lack of creativity and innovation, and perhaps due to market saturation, iPhone sales have now been largely stagnant for three years, with AAPL reporting a modest decline in iPhone sales in the last quarter.
And while we have yet to see channel check data on the latest iPhone sales in the US, anecdotal reports from China suggest that Tim Cook’s latest product offerings may be nothing short of a complete flop, as retailers and resellers in Hong Kong and mainland China reported one of their worst sale records for the latest batch of iPhones when they hit the stores on Friday.
According to SCMP, just a handful of people had lined up outside the Apple store in Causeway Bay in Hong Kong before it opened at 8am on Friday. Some who planned to resell the phones to scalpers only offered HK$1 (US$0.13) more than the original price. Some were even offered a discount.
Buyer Wilson Poon, 30, gave up on trying to resell his two 256GB iPhone XS Maxes to scalpers waiting outside the Causeway Bay store after he was offered less than what he had just paid.
“The scalpers here offer HK$100 lower [than the original of price of HK$10,799, US$1,382]. Sin Tat Plaza should offer HK$300-400 [US$38-51] higher than the original price, according to my experience,” he said, referring to the shopping centre in Mong Kok where numerous phone repair and accessories shops are located.
Ivy Wong, a 30-year-old clerk, also failed to resell her 256GB gold iPhone XS Max.
When the stores opened around 10am, scalper demand emerged only for the high-end phone, with scalpers only interested in buying the 512GB iPhone XS Max phones at HK$300-500 higher than the original price, as models with smaller storage were ignored. Then, around noon at Sin Tat Plaza, the smaller 64GB and 256GB iPhone XS were sold to shops at the mall at HK$249 to HK$399 lower than the original price, according to a local online forum.
While scalper demand is a subjective metric, it demonstrates the “coolness factor” of the latest Apple gadget among the more fanatical supporters. Only in this case, the word “fanatic” is used loosely, because compared to prior years the latest iPhone products simply failed to provoke any notable interest.
Sheung Leung from G World at Sin Tat Plaza, who sells the gadget mainly to local and mainland customers, said that profit was slashed by half compared to recent years. “Two or three years ago, Hong Kong sold the product earlier than the mainland, so many mainland customers come deliberately to buy the phones. Now, only those who happen to be travelling here would drop by to get one,” Leung said.
Meanwhile in China, retailers found sales disappointing as well, with one Shenzhen vendor claiming that “the new iPhone was one of the worst sales situations she had encountered for many years.“
Why the tepid demand? First and foremost the stratospheric price.
At Huaqianbei, an electronics manufacturing hub in Shenzhen, smartphone retailer Cat Fu said she sold just two units of the iPhone XR in the morning of its debut. The two phones – one gold and one silver – were bought in Hong Kong for HK$9,499 (8,290 yuan) and sold for 9,860 yuan (HK$11,289) in mainland China. The same model on Apple’s official China website is 9,588 yuan (HK$10,977).
“The prices of the new iPhones are crazily high and ordinary consumers could not afford them. And most of the customers say they do not see a big difference between new iPhones and the old ones,” Fu said.
Not even Apple’s traditional gimmick of using online delivery delays to “represent” strong demand has worked this time around.
Li Yiqiang, who bought a gold Hong Kong-version of the 64GB iPhone XR Max at the price of 9,800 yuan (HK$11,220) in Huaqiangbei, said: “If I place an order in the Apple Store, I have to wait for 10 days to get one. But now I only pay 200 yuan (HK$229) more to get one immediately. Why not?” Li said.
And in the worst possible news for Apple which tries to capitalize on the annual upgrade cycle by offering its latest phones at prices that are sometimes orders of magnitude higher than the competition, many of the potential buyers will simply turn to older, lower priced models.
“Now we notice a lot of consumers are considering to buy older versions like iPhone 7 and iPhone 8,” said Fu.
“We know the current economic situation is not good and many people are strapped for cash. I could hardly become optimistic about the new iPhone sales this year.”
In an attempt to offset the tepid – if not declining – demand for iPhones with little innovation or the elusive “must have” factor, Tim Cook has instead focused on average selling prices, which in recent years have been rising, helping overall revenues. And, as we showed last week, Apple is hoping to capitalize on more of the same this holiday season with the iPhone Xs’ sharply higher price points.
However, in light of the abysmal reception of the new product in China, Apple’s plan to offset declining volumes with higher ASPs may have finally met a brick wall, and not just due to the higher price: the magic no longer appears to be there.
“I do not feel excited to get the new one. The iPhone XR Max does not look very different from the older ones. I think Chinese people now are spoiled by multiple choices of mobile phones” said HK-buyer Li Yiqiang.
If Li’s sentiment is representative of what the typical iPhone buyer thinks, the world’s most valuable company will soon have to dig very deep in its bag of “buyback tricks” to keep the the typical AAPL stock buyer happy.
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