iPhone XR sales are not good, Apple uses trade-in to offer big discounts

According to foreign media reports, Apple is boosting iPhone XR sales by increasing the value of repurchased devices and offering discounts, which was previously rare.

In the days before and after the iPhone XR went on sale, Apple executives shifted some marketing staff from other projects to the iPhone XR to boost sales of the company’s phone, according to a person familiar with the matter, who spoke on the condition of anonymity to discuss the company’s strategic changes. The person called it a “fire drill” and indirectly acknowledged that sales of the devices might fall short of expectations.

[[251574]]

Since then, Apple has begun a series of aggressive trade-in offers that have temporarily lowered the prices of some of its first iPhones, a rare step for Apple, which has raised device prices in recent years to boost revenue and profits. Apple spokeswoman Trudy Muller declined to comment.

Apple added a new iPhone XR promotional ad to the top of its website on Sunday evening, promoting the iPhone XR at a super low price of $499, a full $300 off the official list price. The ad, which is marked with an asterisk and described at the bottom of the page, asks consumers to trade in their high-end iPhone 7 Plus, which they bought two years ago, for a new one.

Apple has lost about a fifth of its market value since early October as demand for its iPhones wanes. On Monday, iPhone supplier Cirrus Logic cut its holiday sales forecast by 16% due to "recent weakness in the smartphone market." Apple has also stopped reporting iPhone unit sales, sparking concerns that its most important product is no longer growing.

Apple shares fell 4% to $177.75 on Tuesday. HSBC downgraded Apple's stock rating, saying the current iPhone sales growth has ended. "Apple's success lies in the fact that it has launched very popular and expensive products, but now it is facing the reality of market saturation," the bank's analysts wrote in a report to investors.

The new marketing push could boost holiday sales and help Apple achieve its larger goal of increasing usage of its devices. However, the move could undermine a key bullish argument from analysts: that higher prices will make up for lackluster sales.

Last week, the company began offering a limited-time promotion that increases the trade-in value of older iPhones by $25 to $100. Apple retail store employees have also been told in recent weeks to mention the program more often to customers in stores, according to another person familiar with the matter. Last week, some Japanese wireless carriers also cut prices on the iPhone XR through subsidies.

There were similar concerns about iPhone X sales last year, but the phone ended up selling well. Of course, Apple has used similar marketing tactics before. In 2007, Apple cut the price of the iPhone by $200, less than three months after its release. When the iPhone 3G came out in 2008, Apple worked with carriers to subsidize it to consumers. In the past, Apple has also quietly increased the trade-in value of older iPhones.

Apple marketing chief Greg Joswiak said last week that the iPhone XR has been the company's best-selling product since it went on sale in late October.

But despite those steps, “given that we’ve now seen the end of the iPhone cycle, investors are very focused on the company’s long-term strategy and growth beyond the iPhone,” said Daniel Ives, an analyst at Wedbush Securities. “In such a tough tech environment, investor doubts won’t do Apple any favors.”

Apple is developing several new products and services, including an augmented reality headset, self-driving car technology and digital products such as original videos, and analysts expect the new business model to be centered around subscription users.

Those choices are riskier than the iPhone, which for a decade has lured millions of consumers into paying hundreds of dollars every two years for a new phone. While Netflix is ​​the leader in digital video, Alphabet Inc.’s Waymo is the undisputed leader in self-driving cars and Amazon.com Inc.’s Prime service has a lock on online subscriptions, augmented reality hasn’t caught on with the public in the same way.

"The question again is, 'What is the next phase of innovation?'" said Michael Olson, an analyst at Piper Jaffray, a market research firm. Apple spent $35 billion on research and development from 2016 to 2018. The technology that emerges from this massive investment "needs to be the new engine of growth," Olson said.

It’s nearly impossible to find another hit like the iPhone. Since Apple released the device in 2007, it has become one of the most successful products on the planet. Apple’s revenue of $167 billion in its most recent fiscal year is roughly the same as Alphabet and Walt Disney combined.

Apple aims to have the technology ready for an augmented reality headset in 2019, with a product possible as early as 2020, people familiar with the matter said late last year. Apple Chief Executive Tim Cook sees augmented reality as potentially as disruptive as smartphones.

It’s unclear whether the product will be a hit. The market is just getting started, and early entrants like Google Glass have flopped. Microsoft Corp.’s augmented reality glasses, HoloLens, have done slightly better in business and other applications, while startup Magic Leap’s recently released augmented reality device has received mixed reactions from the public.

When it comes to consumer technology, Apple is good at making better hardware than early adopters, so there is hope. But the market has a long way to go to catch up to the iPhone's achievements. According to research firm IDC, shipments of augmented reality headsets will approach 5 million units by 2022. By comparison, iPhone sales currently exceed 200 million units per year.

Emerging markets have provided new sources of growth for Apple's iPhone business. But the company is still struggling in several of them. The most promising emerging market is India, where Cook recently said sales were "flat" in the fourth quarter. Apple sold less than 1 million smartphones in the Indian market in the first half of 2018, according to market research firm Counterpoint Research.

To unlock sales in those markets, Apple may need to embrace deeper and longer-lasting iPhone discounts than it offered in the U.S. this holiday season.

"The conundrum for Apple is that now it needs to look in the mirror and decide whether it should launch a lower-priced iPhone," Ives said.