Hey guys its Greg with Apple Explained.And in this video were going to cover some of the trouble Apples had with their iPhoneXR. Because the company expected it to be one of the best selling iPhone models of alltime, but its become clear that isnt the case at all. And Apple has been movingvery aggressively to remedy the lack of demand. Now this topic was the first place winnerof last weeks voting poll, and if you want to vote for the next video topic, dontforget to subscribe.That way the polls will show up right in your mobile activity feedand you can let me know which video youd like to see next. Now before the iPhone XR and XS was introducedback in September, Apple was enjoying the tremendous success of their iPhone X, whichhelped catapult the company to a one trillion dollar valuation in August 2018. But therehad been many criticisms of the iPhone X, one of the biggest being its high price. Becauseat one thousand dollars, it was the most expensive iPhone ever sold, and many analysts believedthat would hinder sales of the model. But Apple proved them wrong, selling more iPhonesin 2017 than the year before. So when it came to the iPhone XS and XR, Appleassumed they had a winning combination on their hands.Especially since they were offeringa budget iPhone that featured an even larger edge to edge display than the X. And it camein colors! So why on earth would the affordable, attractive, feature-filled iPhone XR not selllike hotcakes? Well, there has to be at least one reason, because to Apples surprise,the XR didnt perform as well as theyd expected.And this has contributed to a hostof problems for the company. Like falling stock prices, criticism from analysts, andfrustration from suppliers. So lets take this story one step at a time, and figureout why the iPhone XR became one of the only models to fall short of Apples expectations. It all started on October 19th, 2018. Theday Apple began taking preorders for the iPhone XR. You see, preorder day for any new iPhoneis always highly anticipated, with millions of people across the globe eager to be thefirst to submit their order on Apples website. Because typically what happens is, withinhours, the iPhones shipping time begins to slip as all the preorders come pouringin. But that didnt happen with the iPhone XR. In fact, it took four days of preordersbefore there were any shipping delays. And one reason for this is that initial demandfor the XR wasnt nearly as high as Apple hoped.But there couldve been another reason,maybe Apple intentionally ordered more iPhones than usual in order to prevent shipping delaysof as many preorders as possible. And while this may be true, the events that would unfoldlater on suggest otherwise. Because just a few days after the XR wenton sale, Tim Cook moved marketing staff from other projects to work on boosting sales ofthe new iPhones. And an internal source called this shift a fire drill, which certainlysuggests the iPhone XR was selling below Apples expectations. And work of the newly assignedmarketing team became visible right away. With Apple partnering with The Ellen Showfor the first time, giving away a free iPhone XR to every audience member. But when it cameto their Black Friday promotion, Apple wasnt so generous. Only offering gift cards of upto $50 if you bought an older generation Apple device. But the company obviously felt muchmore giving when it came to the iPhone XR.Since they offered a discount of up to $300upon trading in your existing iPhone. And thats something I want to talk about inmore detail. Because although Apple has had an iPhone trade in program for years, theynever promoted it as aggressively as with the XR. Its the first thing listed on Appleshomepage and its even displayed on a sign inside of Apple Stores across the country.And this is very uncharacteristic of Apple, who usually never runs any sales or promotionson any of their products, and this is especially true when it comes to the iPhone. Becausedemand for the latest model is usually so high that Apple is able to simply name theirprice and never lower it until an updated model takes its place.But that isnt thecase this year. The fact that Apple is promoting the iPhone XR at its potential trade-in priceof $450 really goes to show how desperate they are to generate interest in the new model.And to top it all off, Apple actually indirectly lowered the price of the iPhone XR in Japanthrough carrier subsidies. So Docomo customers will effectively be saving $100 with a 24month contract. And thats a move weve never seen before from Apple. Now I cant help but think that if the XRhad sold as well as Apple expected, we probably wouldnt be seeing it on the Ellen Showor promoted at a trade-in price on temporary signs at Apple Stores. But it seems that all the marketing and promotingdidnt have too much of an effect on iPhone sales. Because two months after its release,Apple cancelled a production boost they had scheduled for the iPhone XR. You see, thecompany had originally planned on increasing the number of assembly lines for the XR beforethe holiday season. But they actually did the exact opposite. Decreasing their productionlines from 60 to 45. A 25% manufacturing drop right before the holidays, which is definitelysaying something.Now I should mention that there were reportsclaiming the cancellation of the iPhone XR production boost was due to quality issueswith its Printed Circuit Board rather than low demand, but this doesnt explain whyApple decreased assembly lines rather than keeping production steady. Now the news surrounding the iPhone XRslackluster sales really took a toll on Apples share price. But this wasnt the only thingthat scared investors. Because on November 1st, Apple announced theyd stop reportingunits sales of all their products. Something many experts believed was influenced by disappointingsales of the iPhone XR. And as a result, Apples share price experienced a sharp fall at thebeginning of November. And while its true that the American economy as a whole begandeclining around this time, the negative press surrounding Apple only accelerated their trenddownward. But the financial burden of slowing iPhonesales extended to companies beyond Apple. Because if you think about it, all of thesuppliers who provide the iPhone with different components also suffered the consequencesof lower than expected sales. In fact, many display and chip manufacturers complainedabout their largest client cutting back on orders, and after a second phase of orderreductions near the end of November, supplier Largan Precision saw revenues decline, PrintedCircuit Board supplier Career Technology reportedly laid off110 workers to deal with order cutsby Apple, Lumentum Holdings, the main supplier of iPhones Face ID system, anticipated a $70mrevenue loss; while screen maker Japan Display also lost revenue and reported lower thanexpected demand for the new iPhone.But probably the most telling sign of allthat Apple jumped the gun with the new iPhone XR is when you consider its inventory health.Now Tim Cook is known for being one of the best inventory managers in the industry. Infact, he was hired onto Apple back in 1998 because of his experience in just-in-timemanufacturing, and because of his expertise, Apple has been very good at minimizing theamount of money they have tied up in unsold inventory.Because as you can imagine, itsnot very profitable to have millions of unsold iPhones sitting on apple store shelves acrossthe country. And typically the iPhone has almost always had a healthy sell through rate,with a backlog of about 1 to 2 days of inventory. But supply of the iPhone XR is reportedlyalready bloated to over three days of inventory. So it makes sense that Apple is cutting manufacturingfor the model since demand is clearly lower than initially estimated. Now I should mention that this isnt thefirst time Apple has overestimated the sales potential of a new iPhone model. Because backin 2013 Apple made similar production cuts to their iPhone 5c, and Tim Cook later admittedthat they had overstocked the model since the sales ratio between the 5s and 5c wasmuch wider than expected. So when you consider the low number of preorders,production cuts, aggressive promotions, and supplier layoffs, you begin to understandwhy the iPhone XR has been such a problem for Apple. There simply isnt as much demandas the company expected and now theyre left to wonder why.And I think there are a variety of factorsat play. First, the iPhone X already sold extremely well just one year ago. And remember,it was a $1,000 device. So I dont think many of those customers are looking to dropanother grand on a new iPhone with virtually zero improvements. And thats somethingelse to consider, I know many people who bought a used iPhone X rather than a new iPhone XR.Because youre getting a higher quality display, camera system, and design at a lowerprice. So you could argue that the iPhone X was the true budget iPhone of 2018. Andwhile Apple cut production of the iPhone XR, they actually had to increase production ofthe iPhone 8. Which was likely a more appealing option for customers on a budget buying new,since the 8 starts at just $600, 20% less than the XR. Now thats not to say the iPhone XR isnta good device. I think its the best budget phone Apple has ever made. The problem isthat its hard to call it a budget phone when its priced $100 more than the flagshipiPhone 7 released just two years ago.And I think Apple understands this, their problemis that the smartphone market is over saturated and they need to raise prices in order tocombat slowing iPhone sales. After all, the iPhone accounts for almost 60% of Apples totalrevenue, with services coming in second at around 16%. So its clear that Apple istrying to keep the average selling price of iPhones up as much as possible, Im justafraid the days of truly affordable budget iPhones died back in September with the discontinuediPhone SE. So that is Apples iPhone XR problem, and ifyou want to vote for the next video topic, dont forget to subscribe. Thanks for watchingand Ill see you next time..
