​Notoriously ​Notched X Not iPhone’s Ruination

According to a click-bait link to Slate, and a slew of articles elsewhere, iPhone X sales are “abysmal”. However, the 3rd party data in the Slate article​, data that says 30% of Apple’s iPhone sales come from the X, 40% from the 8’s, and 30% from the rest, prove that it is a VERY valuable product for Apple, even by revenue numbers. In terms of profits, it’s likely gangbusters.

30% of iPhone sales are X’s, priced from $999 to $1,149, coming in 4 different combinations of color and capacity.

40% of iPhone sales are 8’s, priced from $699 to $949, coming in 12 different combinations of physical size, color, and capacity.

30% of iPhone sales are SE’s, 6’s, 7’s, priced from $349 to $769, coming in 44 different combinations of physical size, color, and capacity.

iPhone sales were up ​in the 4th quarter of 2017, over the 4th quarter of 2016.

Are sales up enough? Maybe, maybe not.

Did Apple underestimate and then overestimate future X sales? Probably, but ​predicting the future is more of an art than a science.

However, assuming each of the categories above sell at the median selling price within their range, the four iPhone X variations are responsible for 54% of iPhone revenue, or 13.5% each, while the 56 remaining variations are responsible for 46%, or 0.85% each. Given the manufacturing and inventory hassle of dealing with a variety of models, I would say that Apple may be more concerned with the bottom of the lineup than the top.

And typically, in any given product category, the higher the selling price of a product, the higher the margins. Also typically, the higher the product’s production volume, the higher the margins. Notice that X has the highest price and highest production volumes. This would suggest that the percentage of Apple’s iPhone profits that come from the X are even higher than the percentage of iPhone revenue, unless they have a HUGE and unprecedented problem with assembly, component, or warranty costs.

Do stock market valuations of companies sometimes get ahead of where they should be? Of course. Are Apple’s too high? Not based on their profitability, but perhaps based on their lack of diversification, which has got to be factored in as a risk, but that’s a different story.

Matt Beale

[Note: Although the author neither uses an iPhone, nor directly owns Apple stock, he is a known Apple sympathizer.]

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