Analyst says Apple needs to make more signficiant price cuts in China to avoid "code red" scenario

Analyst says Apple needs to make more signficiant price cuts in China to avoid
At the beginning of this month, Apple cut the prices of the 2018 iPhone models by up to 6% in China. This took the price of the "more affordable" iPhone XR down to 6,199 Yuan (equivalent to $924 USD) compared to the 6,499 Yuan that the device cost at the end of March. At the same time, the iPhone XS and iPhone XS Max were reduced in price by 500 Yuan each ($74.50 USD). This was the second time in 2019 that Apple cut its iPhone prices in China. Responding to a strong dollar that forced Apple to price the iPhone XR above the Huawei Mate 20 Pro in China to protect its margins, the company dropped wholesale prices of its phones in the country.

So the big question is whether consumers in China have responded to the price cuts. At least one analyst says that they have. According to Seeking Alpha, Wedbush Securities' Daniel Ives says that demand for the iPhone XR in China is "slowly turning around" following the price cuts. But Ives believes that Apple is not yet finished wielding its price cutting ax. To avoid what he calls a "code red" situation in China, the analyst expects to see "more significant" cuts announced by the company. Apple's next generation of iPhones is expected to be unveiled in September. That means retailers in China would be expected to cut their iPhone prices over the summer months in order to clear out inventory prior to the launch of the 2019 models.

Ives calls Apple's price cuts "a smart and necessary strategy" even if they do have a negative effect on the tech giant's revenues. Not only does he see the region continuing to be an important one for Apple, but he also points out that by selling more iPhones, albeit at a lower price, it will help the company collect more services revenue. This is Apple's second largest unit in terms of revenue, and its most profitable. The firm has a goal of doubling services revenue from $25 billion in 2016 to $50 billion next year, and it garnered nearly $11 billion in such revenue from October through December of last year. The businesses in this unit include AppleCare, Apple Pay, the App Store, iTunes, Apple Music, Apple News+, Apple TV+ and Apple Arcade (later this year).

Apple shipped 20% fewer iPhones in China during the fiscal first quarter


Back in January, when CEO Tim Cook said that the company was lowering its revenue guidance for the fiscal first quarter of 2019, weak sales in China was cited as one of the reasons for the top-line shortfall. As it turned out, during its fiscal first quarter, Apple shipped 20% fewer iPhones in China year-over-year. During the three-month period from October through December, the iPhone's market share in China was 11.5%, placing Apple behind Huawei, Oppo, and Vivo.

Ives continues to rate Apple's shares "outperform" and has raised his target on the stock to $225 from $215. The company's stock closed at $142.19 on January 3rd in the wake of Apple's announcement that it was cutting its revenue guidance for its first fiscal quarter of 2019. Since then, the stock has risen by 42% to $202. Once again, Apple is approaching a valuation of $1 trillion dollars. Last August, the company became the first publicly traded U.S. firm to hit that milestone when the stock traded at $207.05. The following month, Amazon also joined the trillion dollar club. While Apple was the most valuable publicly traded firm in the U.S. for a couple of years, by the end of 2018 it was Microsoft that was at the top of the list. Thanks to the current rally, Apple once again becomes the most valuable public company in the U.S. with a market cap over $950 billion. Microsoft is currently valued at $915 billion with Amazon at $907 billion.

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21 Comments

1. lyndon420

Posts: 6366; Member since: Jul 11, 2012

Lower the costs even more to something more reasonable across the globe - surely they won't lose the customers they currently have in their ecosystem just because the phones become cheaper. More device sales = more services yes, but also more apple care revenue, etc.

17. sgodsell

Posts: 6642; Member since: Mar 16, 2013

Apple can't do that, especially when they have positioned themselves as a premium brand. The real problem is the competition have surpassed Apple in a number of areas, and they are providing better specs at lower costs. You just have to open your eyes and see what the competition actually has come out with. For instance the iPhone XR is way overpriced, and not worth Apples asking price.

19. iloveapps

Posts: 126; Member since: Mar 21, 2019

It has been always been like that. Android has better spec and more features to attract costumers. Still iphones are better in terms of performance, battery, reliability, optimization, seamless integration, camera and post services. Compare Xr with other iphones. Its display is enough for its small screen and its good because it saves battery making it last longer than most android. Android hates apple’s pricing, which is always expected due to higher price. While their android devices provides more feats and higher specs and yet not good enough for a 5year use. Not even close for gaming.

20. sgodsell

Posts: 6642; Member since: Mar 16, 2013

That is BS. Your living in an Apple vacuum. Battery for the XR comes with a bigger battery, and a low resolution HD+ display. No other flagship priced smartphone on the market comes with such a low resolution display, period. Even low end or inexpensive Android smartphones these days come with a Full HD+ resolution display. As far as reliability is concerned, you act like Apple is the only one that can make a smartphone that is reliable, which is far from the truth. The seamless integration is funny, especially if you introduced any other device that is not from Apple. Then the so called seamless integration is not their at all from Apple, and then Apple fails in that category. You talk about Camera, well clearly you have had your eyes closed for a few years, and haven't been looking at the competition. The post services, the Chinese and Indians are not suck into iMessage or FaceTime crap. The smart people have actually opened their eyes and said, I don't want to be locked down and into Apple's wall garden. It's another reason why Apple will continue to decline in China, India, and third world countries.

2. Rampage_Taco

Posts: 983; Member since: Jan 17, 2017

It's crazy that Apple's devices are built in China yet they sell for less in the US

3. drunkenjay

Posts: 1616; Member since: Feb 11, 2013

murica numba 1

6. oldskool50

Posts: 115; Member since: Mar 29, 2019

Which one? North America or South America? Do you mean US America? Because America is a big country with lots of countries an provinces. (just messin with ya)

13. slashas

Posts: 118; Member since: Jul 17, 2017

As far as I am aware US is in North America? Don’t it? :D

7. TechNeck

Posts: 621; Member since: Aug 29, 2014

The stench...

4. oldskool50

Posts: 115; Member since: Mar 29, 2019

Well, isn't it actually true of many product though? Think about it. What is crazy though is, how is it Apple products cost more outside the US and other OEM's who sell the same products, their products cost less. Example, the iPhone XR is $750, outside the US, the XR is $1000+. A $750 phone from Samsung in the US, will still cost less than $900 outside the US.

9. vgking9699

Posts: 70; Member since: Mar 01, 2019

That’s not apples fault That’s the Chinese government tacking on their own 25% tariff tax to get China locals to buy smartphones built in China

12. TheOracle1

Posts: 1811; Member since: May 04, 2015

Please take this for what it is and not a slight on you. You sound like that ignoramus Trump. China has Special Economic Zones (Free Trade Zones) like Shenzen where manufacturers can produce goods for export without local tariffs etc. In other words they can be exported to the US without local tariffs and taxes. Once those goods are "imported" into China for sale they are treated like regular imports and tariffs apply. Many countries do this to create jobs because, in the long run, job creation is more economically beneficial than simple trade.

5. oldskool50

Posts: 115; Member since: Mar 29, 2019

Every reviewer and tech fan on this site, should really look at this video. I personal would love to see the reviews from the old days. Today's devices are all more or less the same. It's time for blogs to evolve to providing better content, that isn't all about what is better or not. But giving us the info that helps us draw our own conclusions. https://www.youtube.com/watch?v=u-VEwCuZnv8

8. Whitedot

Posts: 650; Member since: Sep 26, 2017

Houston we have a problem here "At the beginning of this month, Apple cut the prices of the 2018 iPhone models by up to 6% in China. " Apple and apple minded still think they live in pre-Android rise era. That's where the problem is. Especially it's so obvious in China with solidarity for domestic product at sagnificatly lower price and often superior or/and way better value for money proposition. Whoever thinks that lowering iPhone price by 6% will turn the tide around is simply half brain. Often Android devices are 20-40% cheaper!

10. vgking9699

Posts: 70; Member since: Mar 01, 2019

Those androids are made by Chinese companies and don’t get the Chinese government tariff tax added so they of course are cheaper

15. slashas

Posts: 118; Member since: Jul 17, 2017

Those android phones are made in tax free zones and can be exported without taxation over the world, but once even it enters China it will be taxed. They just sell phones with less margin, that’s all. But this is temporary, by looking how much high end HUawei is costing...

22. sgodsell

Posts: 6642; Member since: Mar 16, 2013

But that's just it. Apple makes very few smartphone models every year. Where as all the other OEMs will make lots of different models every year, and even test out different models in different regions. Look at Samsung, LG, Xiaomi, even Huawei make around 30-40 different models every year for different regions. Where as Apple only wants to make 3 models a year at the same time, and for all regions. It cuts down on production costs for Apple in the long run, but then those models have to fit everyone, including all of its features, like a notch, no finger print scanner, as well as others. Where as someone like Samsung will make models with tear drops, holes, or no notches at all. Other OEMs will do the same. Apple is always it's our way, or highway. This is hurting Apple in the long run, but Apple is too stupid to see that.

11. pogba

Posts: 60; Member since: Jun 13, 2018

What about the billions they extort from Google every year for that "default search engine" bs? Is that also part of their "services"?

14. ryq24

Posts: 872; Member since: Oct 17, 2011

Apple should also cut the salary and benefits of Tim Cook and other top executive to offset the lower price of iPhone.

18. TS020

Posts: 8; Member since: Feb 16, 2019

What Apple are too arrogant to admit is that, in China, a phone is just a means of accessing Tencent apps. The switching costs between iOs and Android are far lower than they are in other countries, and if you have a choice between two phones that access Tencent but one is half the price, guess which one consumers are going to pick...

21. dimas

Posts: 3235; Member since: Jul 22, 2014

Apple gives money to chinese govt. thru manufacturing but chinese are discouraged to buy a iphones. Just move to india or vietnam, apple. You give employment but the chinese govt. will just keep pinning your sales down. If huawei say they can live without U.S., apple can also live without china. You just have to find the balance between pricing and technology you offer. Your products are good, apple. You just don't know how to write the price tag.

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