Economic Daily News recently claimed that Apple (NASDAQ:AAPL) had cut its iPhone X production target for the first calendar quarter of 2018 to just 30 million units from an originally planned 50 million units.
If Apple has indeed cut back its iPhone X production targets, then that's certainly a cause for concern for both Apple and its investors -- there's no question about that.
However, something that I take issue with is one potential explanation for this rumored weakness from JL Warren Capital (as reported by Reuters).
The analysts claim that the iPhone X isn't doing as well as expected due to the "high price point and a lack of interesting innovations."
Yes, the iPhone X starts at $999 for the baseline configuration and goes to $1,149 for the version with greater storage -- I get the "high price point" argument. However, the idea that the iPhone X lacks "interesting innovations" stretches credulity.
Lots of innovation inside of the iPhone X
The iPhone X is an innovative device, especially compared to previous iPhone models.
It has a superbly performing OLED display that improves image contrast compared to previous iPhone models, and the display covers most of the front of the device, giving it a much improved screen-to-body ratio relative to previous iPhones.
The iPhone X also includes a front-facing camera system that can do face tracking, facial recognition, and even take so-called "portrait mode" selfie shots.
The iPhone X also has dual-optical image stabilization capability on the rear-facing camera -- a first for an iPhone.
On top of these features that differentiate the iPhone X from the cheaper iPhone 8 and iPhone 8 Plus that launched alongside it, the iPhone X also has the standard generational improvements in camera sensor quality, processor capability, wireless capability, and even the addition of wireless/inductive charging.
The iPhone X is a thoroughly modern, state-of-the-art smartphone that not only makes older iPhones seem dated by comparison, but in my opinion, outshines its competition, too.
The iPhone X is full of "interesting innovations."
What could be going wrong, then?
To be clear: The performance of Apple's iPhone X in the market, despite the reports of a shortfall, is quite impressive. Apple is expected to ship between 30 and 35 million iPhone X units this quarter and, if this report is to be believed, it'll ship about 30 million units in the following quarter.
That's still more than 60 million iPhone units shipped over two quarters at an average selling price that's somewhere north of $999 (the baseline model costs $999 and the upgraded storage model costs $1,149 so the average selling price will be somewhere in between those two numbers).
I think there are a couple of things that could be working against Apple.
First, Apple didn't launch a larger-sized iPhone X to attract iPhone buyers that typically go for the Plus models of Apple's iPhones. Such customers may have opted for the cheaper iPhone 8 Plus this cycle or they might simply be waiting for the inevitable Plus version of the iPhone X next year.
Additionally, what we may be seeing is that there is a limit to how many iPhone customers are willing to pay $999-and-up for a smartphone -- at least today. The iPhone 8 and iPhone 8 Plus, as well as Apple's older iPhone 7 series and iPhone 6s series devices, should help satisfy demand for cheaper devices.
But those devices aren't anywhere near as exciting from a form factor perspective as the iPhone X is.
To address this gap in its portfolio, Apple seems to be planning to launch a lower-cost version of the iPhone X next year to bring the attractiveness of the iPhone X to more accessible price points, which could ultimately drive up iPhone shipments in the next cycle.
Ultimately, while this year's product lineup -- including the iPhone X -- is quite good, it doesn't look like it's enough to drive the big surge in iPhone unit shipments that, perhaps, some may have hoped for. Nevertheless, iPhone X seems set to drive iPhone average selling prices up significantly during this product cycle, which should drive a good amount of revenue growth in Apple's iPhone business.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.