Apple iPhone 6s Production Cut: Exorbitant Pricing Failure Or Strategic Move ?

apple-iphone-6-production cut
source: fonearena

The record sales of 13 million iPhones (in just three days), after the launch of the ‘S’ series, come with a blow for Apple Inc. (NASDAQ:AAPL): The Asia-focused business publication Nikkei, reports that the smartphone giant could cut iPhone 6s production by a third.

The American smartphone maker clocked peak sales of 231 million devices in FY2015; that is when Morgan Stanley’s chief analyst Katy Huberty dropped a bombshell last month—‘sales of iPhone will drop in 2016’. Huberty’s analysis proves to be almost right as Nikkei further adds that Apple’s existing inventory of new models, launched last September have “piled up at retailers” across China, Japan, Europe and even the U.S.

Companies including Japan Display, Sharp, and LG Display manufactures LCD displays and panels for the iPhone while Sony supplies image sensors. While, TDK, Alps Electric and Kyocera supply electronic parts for iPhones. These companies are likely to see a drop in shipments, as Yasuo Nakane, Senior Analyst at Mizuho Securities suggests a “year-on-year decline in iPhone output for 2016 as a whole”.

NASDAQ figures show that Apple’s stock stood at $100.70—just a fraction above the $100 threshold. The latest development comes amidst signs of slowing demand for the latest iPhone 6s and 6s Plus models in Q4 2015.

Even though the iPhone 6 was the dominant model in the market, with a 30% market share, Localytics’ report on iPhone adoption rate reveals that the latest models accounted for just 2.7% of Apple’s total active devices; while last year’s models accounted for 4.0% during the same time-frame.

Apple boasts a 70% faster CPU speed, along with a 90% faster GPU processor, in their new 6s models. Yet, many critics point out that the new iPhone just don’t offer enough compelling reasons for an ‘upgrade’. The excessive pricing in the economic markets likes of India, along with no financing options, and a low penetration of LTE infrastructure forced the iPhone to lose out to Android.

How Apple Could Address The Downfall

Our Study suggests that 56% of users surveyed wanted Longer battery life, while 54% of them wished for Wireless charging in the new 6s model. Another promising strategy is introducing a smaller sized iPhone model that could garner sales from sensitive markets like India where the iPhone 4s models are still selling consistently.

The rumored 4-inch iPhone 6C model could provide a boost in sensitive markets wherein high and medium end budget phones are making the buzz. As Localytics suggests that the iPhone 6 and 6 Plus owns a bigger chunk in the iPhone Device share, the ‘S’ series only provided a bigger screen option with a promising 3D Touch feature, failing to attract users for an ‘upgrade’.

Remember all the buzz that erupted when the Indian market reported a $1 billion sales mark? There lies an opportunity with the rumored 6c—Apple could learn from the mistakes it made with the launch of the 5c. The iPhone 6s’ costliest component was its screen, with iPhone 6c Apple could build a smaller battery along with the lowered cost of production using a cheaper build form.

A quick analysis suggests that by lowering production costs for the new 6c that could increase penetration in yet-to-be captured markets like India, and by encouraging customers to upgrade to newer generations of iPhones, Apple could set a promising sales figure in this fiscal year. And yes, in the case of Apple, bigger is not always better!

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