sales of iPhone XR leads to production cut

Apple Inc. (NASDAQ:AAPL) has reportedly asked its top iPhone assemblers – Foxconn and Pegatron – to halt the additional production of the relatively low-cost iPhone XR, owing to its weak demand, according to Nikkei Asian Review. As surprising as it sounds, let us look at the story in detail.

Apple’s iPhone XR was something that, upon announcement, was expected to appeal to the masses the most. In fact, the sales of iPhone XR was estimated to surpass 85 million units in the second half of 2018. The other two models, especially the iPhone XS Max, had faced a lot of flak initially for being the most expensive iPhone ever. But the sales and supply figures tell a completely different story. The predictions made by the media initially turned out to be widely off-track. The sales of iPhone XS and XS Max were impressive, to say the least. On the other hand, the iPhone XR did not appeal to the consumers as much as the people thought it would.

“For the Foxconn side, it first prepared nearly 60 assembly lines for Apple’s XR model, but recently uses only around 45 production lines as its top customer said it does not need to manufacture that many by now,” a source familiar with the situation said.

Apple was so far taken aback that they ordered their major suppliers in Foxconn, now known as Hon Hai Precision limited, and Pegatron to cut down on the number of supply chains provided for the iPhone XR. This meant that, on a daily basis, about the production of the iPhone XR would be cut down by the thousands. Apple was, in fact, so confident of the success of the model that they had ordered a smaller iPhone assembler called Wistron to stand by should there be a boom in demand in the holiday season.  Unfortunately, they never even got a chance to use it.

Let’s try and analyse as to why the demand of the iPhone XR dipped failing a lot of market analysts.

iPhone XR: Caught In The Middle?

Honestly, the weak demand of the iPhone XR, when compared to its more expensive counterparts, is a humdinger in its own right. As per the latest benchmark reportthe iPhone XR gives performance upgrades to its previous versions which are almost totally identical to its more expensive counterparts. In fact, it offers the best battery life out of all three. But maybe, the place where the people at Apple got it wrong is the pricing.

Apple’s iPhone XR, at $749, is significantly cheaper than the iPhone XS and XS Max. But, on the other hand, it is also significantly higher than the models below it, namely iPhone 8 and 8 Plus. When compared, the iPhone 8 and 8 Plus cost about 20% less than what the iPhone XR costs. Hence, different people went for different models. The Apple ‘fans’, the people who don’t mind spending on a new iPhone every year, targeted the higher end models in iPhone XS and iPhone XS Max. For the people who wished for more of a budget iPhone, they found the iPhone 8 and 8 Plus offering more value for money in absence of significant difference from iPhone XR.

Demand for iPhone 8 and 8 Plus On the Rise

One of the surprises in the report was the fact that people are actually demanding for the older iPhone 8 and 8 Plus models more than what Apple expected. Initially expected to sell about 20 million units, the Cupertino giant has just ordered production for 5 million units more, to cater to the unexpected demand in front of them. No wonder the company has an eye on the holiday sales to quickly adjust to demands as they arise.

Considering the rising demand of iPhone 8 series the company has started offering the refurbished model of iPhone 8, starting from just $499. And guess what, within no time the refurbished iPhone 8 Plus has gone out of stock.

Dip in iPhone XR Demands Might Not Be A Concern

Regardless of the dip in demand, iPhone XR continues to be highly rated by reviewing entities. Arstechnica recently described it as the “best new iPhone for most people“. CNBC’s Jim Cramer described the low demand of the iPhone XR as “complete nonsense“. It is also possible for people to take a liking to the model over time. But it can’t be denied that Apple, along with most reviewers, was indeed disappointed with the discouraging demand generated by the iPhone XR – the earlier predicted to be the most selling iPhone of H2 2018. Will the trend change? Guess time will tell.

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