iPhone X: Existing iPhone Users Tell Piper Jaffray Why They Didn’t Upgrade

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The iPhone X is an interesting device. It introduced too many changes. Some of them were well-received by consumers while others were not (Yeah, I’m talking about its price and the notch). It has a new bezel-less OLED display. It ditched the home button, and replaced Touch ID with Face ID. Apple CEO Tim Cook told investors during the earnings call that iPhone X exceeded the company’s expectations. However, it failed to trigger the so-called “super-cycle” that Wall Street analysts were hoping. Supply chain reports suggest that the iPhone X sales have seen a steep decline in the January-March quarter. Analysts at Piper Jaffray have tried to figure out why existing iPhone users haven’t upgraded to the 10th-anniversary model.

Piper Jaffray analyst Michael Olson (via Barron’s) surveyed 1,500 existing iPhone owners who haven’t upgraded to the 2017 flagship models. The research firm asked all of them one question: “You currently own an iPhone yet you didn’t upgrade to (what Apple believes is) the best Apple phone yet, the iPhone X. Why?” The results of the survey offer crucial insights into what consumers expect from the future iPhones.

There are three main reasons why the survey participants did not upgrade to the iPhone X:

  1. ‘My phone works fine’: That’s what 44% of participants said. They are happy with their existing iPhone, and don’t find the iPhone X worth upgrading. It’s partially because of the price and partially due to features. The older iPhones still deliver solid performance and take crisp photos.
  2. ‘It’s too expensive’: About 31% of survey participants said they didn’t buy the iPhone X because it’s too expensive. The phone costs $999 for the 64GB model and $1,149 for the 256GB variant, making it the most expensive iPhone ever. Had Apple priced the iPhone X in the same range as the iPhone 8 or even iPhone 8 Plus, its sales could have been significantly higher.
  3. I prefer a larger screen’: Another 8% said they would want a bigger screen (than iPhone X) if and when they upgrade. The anniversary iPhone has a bezel-less 5.8-inch OLED display, which is large enough for a lot of buyers. But people who consume a lot of media on their smartphones tend to prefer bigger screens (6-inch or higher). The iPhone X’s notch gives an impression that its display is even smaller than the iPhone 8 Plus.

The remaining 17% respondents told Piper Jaffray that they didn’t upgrade to iPhone X “for another reason.” Of course, the survey does not represent the entire iPhone user base, but the results are still interesting. Apple seems to be aware of these issues, and will address them with 2018 iPhones. According to KGI Securities analyst Ming-Chi Kuo, the company would launch a 5.8-inch OLED iPhone, a huge 6.5-inch OLED model, and a 6.1-inch iPhone with LCD screen in September this year.

All the three iPhones coming later this year would feature an iPhone X-like bezel-less design with a top notch and the Face ID technology. The LCD version will address the pricing issue. Kuo claims it will be priced in the same range as the iPhone 8. Apple will reportedly remove the 3D Touch functionality from the LCD iPhone to keep costs down.

Despite lackluster response to the iPhone X, Piper Jaffray remains bullish on the Apple stock. The research firm noted that the upcoming iPhones would address the pricing and screen size issues. As a result, Apple is estimated to ship 233.8 million iPhones in the fiscal year 2019. Piper Jaffray’s estimate is higher than the Wall Street consensus of 227 million units.

Meanwhile, JPMorgan analysts said in a research report that Apple would produce fewer than expected iPhones in the first half of 2018 due to poor demand in emerging countries such as China, India, and Indonesia. JPMorgan reduced the iPhone X production estimate for the January-March quarter from 22 million units to 15 million units. The production would go down further to just 10 million units in the April-June quarter.

The total iPhone production is also expected to decline from 55 million to 52 million units in January-March quarter. The research firm has also lowered the April-June production estimate from 45 million to 42 million units. According to the Wall Street Journal, Apple is struggling to sell its expensive devices in countries such as China, India, and Indonesia where companies like Huawei, Xiaomi, and OnePlus offer premium smartphones at less than 40% the price of the iPhone X.

Last month, reports coming out of Asia claimed that Samsung had reduced the OLED panel output at the South Chingcheong facility to 20 million units in January-March quarter from the original output goal of 45-50 million units. The reduced output was in response to Apple lowering the iPhone X production following weak demand. Samsung is the only supplier of OLED screens for the iPhone X. For the current quarter, Apple has projected revenues between $60 billion and $62 billion, well below Wall Street expectations of $65 billion.

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