Consumers Have Spoken, 2018 Apple Products Were Too Expensive

iPhone XR 2
Have consumers finally had enough of Apple's efforts to jack iPhone pricing into the stratosphere? There are numerous warning signs suggesting that this is the case. However, Apple's decision to not breakdown sales numbers for iPhones, Macs and iPads in its future earnings reports could obfuscate any real analysis of sales data.

Apple's flagship iPhone prices have been on the rise for years, but things took a turn towards the extreme with 2017's launch of the iPhone X. The device, with its notched display and first-generation Face ID system, launched with a starting price of $999. Despite analysts and pundits balking at the high price tag, consumers were seemingly unfazed, propelling the iPhone X to become Apple's best-selling smartphone during its production run (outpacing the iPhone 8 and iPhone 8 Plus).

With its 2018 iPhone release, however, Apple has taken its penchant for premium pricing to the next level, and is seriously testing consumers' willingness to part will well over $1,000 for a smartphone. The iPhone XS, for example, starts at $999 -- the same price as its iPhone X predecessor. However, that price only gets you a rather meager 64GB of internal storage. If you want to upgrade to more storage -- which many people likely will, to hold more apps, pictures and 4K video -- you'll have to pay $1,149 for 256GB of storage or $1,349 for 512GB. When you consider comparable Android phones like the OnePlus 6/6T at well under $600 with 128GB on board, iPhone pricing seems simply outrageous. 

Apple iPhone Xs line up 09122018

If you're looking at the iPhone XS Max, you'll probably have to sit down to absorb the sticker shock. It almost seems criminal that a phone costing over $1,000 would have just 64GB of storage, but that's exactly the case with the iPhone XS Max, which starts at $1,099. Jumping to the 2565GB SKU puts you at $1,249, while opting for 512GB rings in at a mind-boggling $1,449 -- that's 13-inch MacBook Pro territory.

To put that in perspective, just two years ago, the iPhone 7 and iPhone 7 Plus launched at $649 and $769 respectively (for 32GB SKUs). It's amazing how quickly pricing has escalated in a few short years.

Even if you want to get in on Apple's current-generation, entry-level iPhone XR, you'll have to part with at least $749. While Apple contends that the iPhone XR is currently its best-selling smartphone, the company seems to have taken to pushing customers to upgrade -- literally. Apple has resorted to push notifications marketing the iPhone XR via its Apple Store app, and is widely marketing the starting price of the phone at $449. Of course, that's not the retail price of the phone, but the price that you'd pay if you were to trade in at least an iPhone 7 Plus.

iPhone XR

Apple typically hasn't resorted to such tactics to move smartphones, but recent reports have suggested that a sales downturn has forced Apple's hand at these unfamiliar [to Apple customers] tactics. In fact, Apple has even resorted to offering bonus trade-in cash to spark customers to upgrade. Again, this is something that we typically see from competitors like Samsung, but it's a tactic that Apple usually avoids.

Supply chain sources have suggested that Apple has reduced orders for the iPhone XR and its iPhone XS/iPhone XS siblings. We've been hearing these reports ever since the iPhone XR launched, and just last week, Citi Research’s Q1 2019 production estimates were trimmed for Apple's iPhones.

Citi estimates that iPhone production will hover around 45 million for the quarter, which is a decrease from early projections of 50 million. "The material cut in our forecasts is driven by our view that 2018 iPhone is entering a destocking phase, which does not bode well for the supply chain," said Citi analyst William Yang.

With regards to the flagship iPhone XS Max, forecasts for production have nearly been cut in half (48 percent reduction). Earlier this month, TF International Securities cut its own iPhone shipment estimates by 20 percent. We have to keep in mind that these are all just estimates, but combine the analyst cutbacks with commentary and weaker earnings from Apple suppliers -- where's there's smoke, there's usually fire.

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And given that Apple has decided not to post its iPhone sales figures going forward, we have no way of knowing how healthy iPhones sales are, other than to look at revenue numbers. It's an unfortunate break from transparency for Apple, but to be fair, none of its competitors pull out individual product sales numbers either.

With that being said, the sticker shock for Apple products isn't limited to just the iPhone. We've also seen sizable increases in iPad Pro pricing. Last year's 10.5- and 12.9-inch iPad Pros started at $649 and $799 respectively. However, 2018 11-inch and 12.9-inch iPad Pro up those starting prices to $799 and $999 respectively. The company has even ratcheted up the price of the Apple Pencil to $129 compared to the first-generation model's $99 price tag. And here's the kicker; you can't use the first-generation Apple Pencil on 2018 iPad Pros, and the second-generation model won't work on older iPad Pros.

Despite the price increases, President Donald J. Trump has suggested that Apple customers wouldn't bat at an eye if he were to impose a 10 percent tariff on products manufactured in China, which would include the majority of Apple's hardware portfolio. Referencing iPhone customers, Trump said, "I mean, I can make it 10 percent, and people could stand that very easily."

For his part, Apple CEO Tim Cook contends that there is a lot of expensive technology that goes into its products, which justifies the high cost. “If you look at even at the phone that’s priced over $1,000, most people pay about $30 a month for an iPhone or $1 a day,” Cook explained. “People want the most innovative product available, and it’s not cheap to do that.”

That's right, for just $1 a day, even you can help sponsor a [formerly] $1 trillion company.