Practice English Speaking&Listening with: Apple's iPhone XR Problem

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Hey guys its Greg with Apple Explained. And in this video were going to cover some

of the trouble Apples had with their iPhone XR. Because the company expected it to be

one of the best selling iPhone models of all time, but its become clear that isnt

the case at all. And Apple has been moving very aggressively to remedy the lack of demand.

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Now before the iPhone XR and XS was introduced back in September, Apple was enjoying the

tremendous success of their iPhone X, which helped catapult the company to a one trillion

dollar valuation in August 2018. But there had been many criticisms of the iPhone X,

one of the biggest being its high price. Because at one thousand dollars, it was the most expensive

iPhone ever sold, and many analysts believed that would hinder sales of the model. But

Apple proved them wrong, selling more iPhones in 2017 than the year before.

So when it came to the iPhone XS and XR, Apple assumed they had a winning combination on

their hands. Especially since they were offering a budget iPhone that featured an even larger

edge to edge display than the X. And it came in colors! So why on earth would the affordable,

attractive, feature-filled iPhone XR not sell like hotcakes? Well, there has to be at least

one reason, because to Apples surprise, the XR didnt perform as well as theyd

expected. And this has contributed to a host of problems for the company. Like falling

stock prices, criticism from analysts, and frustration from suppliers. So lets take

this story one step at a time, and figure out why the iPhone XR became one of the only

models to fall short of Apples expectations.

It all started on October 19th, 2018. The day Apple began taking preorders for the iPhone

XR. You see, preorder day for any new iPhone is always highly anticipated, with millions

of people across the globe eager to be the first to submit their order on Apples website.

Because typically what happens is, within hours, the iPhones shipping time begins

to slip as all the preorders come pouring in. But that didnt happen with the iPhone

XR. In fact, it took four days of preorders before there were any shipping delays. And

one reason for this is that initial demand for the XR wasnt nearly as high as Apple

hoped. But there couldve been another reason, maybe Apple intentionally ordered more iPhones

than usual in order to prevent shipping delays of as many preorders as possible. And while

this may be true, the events that would unfold later on suggest otherwise.

Because just a few days after the XR went on sale, Tim Cook moved marketing staff from

other projects to work on boosting sales of the new iPhones. And an internal source called

this shift afire drill,” which certainly suggests the iPhone XR was selling below Apples

expectations. And work of the newly assigned marketing team became visible right away.

With Apple partnering with The Ellen Show for the first time, giving away a free iPhone

XR to every audience member. But when it came to their Black Friday promotion, Apple wasnt

so generous. Only offering gift cards of up to $50 if you bought an older generation Apple

device. But the company obviously felt much more giving when it came to the iPhone XR.

Since they offered a discount of up to $300 upon trading in your existing iPhone. And

thats something I want to talk about in more detail. Because although Apple has had

an iPhone trade in program for years, they never promoted it as aggressively as with

the XR. Its the first thing listed on Apples homepage and its even displayed on a sign

inside of Apple Stores across the country. And this is very uncharacteristic of Apple,

who usually never runs any sales or promotions on any of their products, and this is especially

true when it comes to the iPhone. Because demand for the latest model is usually so

high that Apple is able to simply name their price and never lower it until an updated

model takes its place. But that isnt the case this year. The fact that Apple is promoting

the iPhone XR at its potential trade-in price of $450 really goes to show how desperate

they are to generate interest in the new model. And to top it all off, Apple actually indirectly

lowered the price of the iPhone XR in Japan through carrier subsidies. So Docomo customers

will effectively be saving $100 with a 24 month contract. And thats a move weve

never seen before from Apple.

Now I cant help but think that if the XR had sold as well as Apple expected, we probably

wouldnt be seeing it on the Ellen Show or promoted at a trade-in price on temporary

signs at Apple Stores.

But it seems that all the marketing and promoting didnt have too much of an effect on iPhone

sales. Because two months after its release, Apple cancelled a production boost they had

scheduled for the iPhone XR. You see, the company had originally planned on increasing

the number of assembly lines for the XR before the holiday season. But they actually did

the exact opposite. Decreasing their production lines from 60 to 45. A 25% manufacturing drop

right before the holidays, which is definitely saying something.

Now I should mention that there were reports claiming the cancellation of the iPhone XR

production boost was due to quality issues with its Printed Circuit Board rather than

low demand, but this doesnt explain why Apple decreased assembly lines rather than

keeping production steady.

Now the news surrounding the iPhone XRs lackluster sales really took a toll on Apples

share price. But this wasnt the only thing that scared investors. Because on November

1st, Apple announced theyd stop reporting units sales of all their products. Something

many experts believed was influenced by disappointing sales of the iPhone XR. And as a result, Apples

share price experienced a sharp fall at the beginning of November. And while its true

that the American economy as a whole began declining around this time, the negative press

surrounding Apple only accelerated their trend downward.

But the financial burden of slowing iPhone sales extended to companies beyond Apple.

Because if you think about it, all of the suppliers who provide the iPhone with different

components also suffered the consequences of lower than expected sales. In fact, many

display and chip manufacturers complained about their largest client cutting back on

orders, and after a second phase of order reductions near the end of November, supplier

Largan Precision saw revenues decline, Printed Circuit Board supplier Career Technology reportedly

laid off 110 workers to deal with order cuts by Apple, Lumentum Holdings, the main supplier

of iPhones Face ID system, anticipated a $70m revenue loss; while screen maker Japan Display

also lost revenue and reported lower than expected demand for the new iPhone.

But probably the most telling sign of all that Apple jumped the gun with the new iPhone

XR is when you consider its inventory health. Now Tim Cook is known for being one of the

best inventory managers in the industry. In fact, he was hired onto Apple back in 1998

because of his experience injust-in-timemanufacturing, and because of his expertise,

Apple has been very good at minimizing the amount of money they have tied up in unsold

inventory. Because as you can imagine, its not very profitable to have millions of unsold

iPhones sitting on apple store shelves across the country. And typically the iPhone has

almost always had a healthy sell through rate, with a backlog of about 1 to 2 days of inventory.

But supply of the iPhone XR is reportedly already bloated to over three days of inventory.

So it makes sense that Apple is cutting manufacturing for the model since demand is clearly lower

than initially estimated.

Now I should mention that this isnt the first time Apple has overestimated the sales

potential of a new iPhone model. Because back in 2013 Apple made similar production cuts

to their iPhone 5c, and Tim Cook later admitted that they had overstocked the model since

the sales ratio between the 5s and 5c was much wider than expected.

So when you consider the low number of preorders, production cuts, aggressive promotions, and

supplier layoffs, you begin to understand why the iPhone XR has been such a problem

for Apple. There simply isnt as much demand as the company expected and now theyre

left to wonder why.

And I think there are a variety of factors at play. First, the iPhone X already sold

extremely well just one year ago. And remember, it was a $1,000 device. So I dont think

many of those customers are looking to drop another grand on a new iPhone with virtually

zero improvements. And thats something else to consider, I know many people who bought

a used iPhone X rather than a new iPhone XR. Because youre getting a higher quality

display, camera system, and design at a lower price. So you could argue that the iPhone

X was the true budget iPhone of 2018. And while Apple cut production of the iPhone XR,

they actually had to increase production of the iPhone 8. Which was likely a more appealing

option for customers on a budget buying new, since the 8 starts at just $600, 20% less

than the XR.

Now thats not to say the iPhone XR isnt a good device. I think its the best budget

phone Apple has ever made. The problem is that its hard to call it a budget phone

when its priced $100 more than the flagship iPhone 7 released just two years ago. And

I think Apple understands this, their problem is that the smartphone market is over saturated

and they need to raise prices in order to combat slowing iPhone sales. After all, the

iPhone accounts for almost 60% of Apples total revenue, with services coming in second at

around 16%. So its clear that Apple is trying to keep the average selling price of

iPhones up as much as possible, Im just afraid the days of truly affordable budget

iPhones died back in September with the discontinued iPhone SE.

So that is Apples iPhone XR problem, and if you want to vote for the next video topic,

dont forget to subscribe. Thanks for watching and Ill see you next time.

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