By John Gruber
Kolide — User focused security for teams that Slack.
Business Insider, reporting on a note from Goldman Sachs analyst Rod Hall:
In the bearish note, Rod Hall and his analyst team said that it seemed as if Apple “miscalculated on the price/feature balance” for the new iPhone XR and that Apple’s less-expensive premium phone might have missed the mark.
“In addition to weakness in demand for Apple’s products in China and other emerging markets it also looks like the balance of price and features in the iPhone XR may not have been well-received by users outside of the US,” the analysts wrote.
“Historically, a disproportionately large chunk of December quarter demand tends to come in the two-week period beginning a week before Christmas day so it is possible that things change though we do not believe this is likely,” the analysts continued, also adding that Chinese demand weakness and a strong dollar might be additional challenges for the company to deal with.
Demand for iPhone XR may well be weaker than Apple and analysts expected. I don’t know. But I will say this: you can’t judge this from poor-mouthing by Apple’s Asian suppliers. Every year, right around now, reports appear that Apple suppliers are claiming Apple has cut orders because demand for the latest iPhones is weaker than Apple projected. Every year. Some years, like with the iPhone 6S models, that probably was true. Most years, it’s nonsense — like last year, with the iPhone X. Apple cuts orders from suppliers for all sorts of reasons, and they don’t explain their reasons. Note that I’m not saying Goldman based this note on supplier reports. I just wanted to get the above off my chest. But it is definitely the case that the WSJ story that prompted the Goldman note was based on bad forecasts from Apple suppliers.
Also, Apple works a lot further ahead than most people seem to give them credit for. I had a conversation with a Cupertino-area source who was very familiar with the details behind one of these recent supplier cuts. It had nothing to do with any current iPhone.
Anyway, regarding iPhone XR, if demand really is weaker than Apple expected, I have a theory about one contributing factor that I haven’t seen mentioned. Hall, in his research note, writes, “it also looks like the balance of price and features in the iPhone XR may not have been well-received by users outside of the US”.
I think “balance of price and features” might be the wrong way to put it. The consensus among reviewers is that the iPhone XR is, if anything, a terrific value compared to the iPhone XS models. You get a very similar edge-to-edge display and industrial design, the same wide-angle primary camera, the same performance, and you get the best battery life of any iPhone Apple has ever made. (After using an iPhone XR for a week or two while working on my review, it was really noticeable going back to my XS that battery life is better on the XR.)
Compared to the XS, there just aren’t many features that aren’t in the XR. The main one is the lack of a telephoto second camera on the back. But I don’t think many typical iPhone users care that much about the second camera. From the objective standpoint of an informed buyer, it’s the XS iPhones that look like a worse value proposition, not the XR. There was remarkable consensus on this point from those who reviewed the XR: This is the new iPhone most people should buy.
But consumers aren’t objective and often aren’t particularly well-informed. What people don’t seem to be considering is that maybe the iPhone XR is less in demand not because it offers too little compared to the XS, but rather too much. iPhone X-class phones offer a new and different fundamental experience: no home button, new gestures that replace home button actions, Face ID in place of Touch ID, and more.
There are many people out there who do not like change, period. Last year, you could walk into a store and choose between two new iPhones: the new-and-different iPhone X and the new-and-familiar iPhone 8/8 Plus. This year, if you want a brand-new iPhone model, there is no “familiar” choice. The XS, XS Max, and XR all offer the same new-and-different experience.
Most previous iPhone innovations weren’t disruptive to familiarity. When the iPhone 4 introduced retina displays, there was no reason for anyone to complain. When they introduced Touch ID with the iPhone 5S, they didn’t take passcodes away. A skeptic suspicious that Touch ID was a mere gimmick wasn’t losing anything compared to the pre-Touch ID iPhone they were upgrading from. A skeptical would-be iPhone X/XS/XR customer, on the other hand, has to willingly give up Touch ID and trust that they’ll find Face ID to be an acceptable replacement.
There is no doubt in my mind that the X-class iPhone experience is better in almost every single way. Apple has done the right thing by pushing this design to all new iPhones introduced this year. But the price they might be paying is that they have nothing new to offer to people who are turned off, rather than intrigued, by “new and different”. And there’s no denying that switching from an older iPhone to a X-class model breaks old habits and requires learning new ones. It only takes a day or two to get used to them, but people don’t have a day or two in the store when making a decision. They have minutes, and in just a few minutes, the iPhone XR is not going to feel familiar.
Remember when the iPhone SE debuted, and supply was constrained for months because it was more popular than Apple expected? Part of the SE’s surprising popularity stemmed from it being smaller, period, and some people truly prefer smaller phones. But part could be explained by the smaller size being more familiar, and some number of people who might have actually preferred a larger iPhone 6 or 6S, if they had given it a chance, bought the SE because they wanted what they were familiar with. And that was just device size. The iPhone X experience is far more disruptive a change.
Most companies with a hit product get into long-term trouble by sticking with the tried-and-true that made their product a success in the first place. Not rocking the boat works — until a disruptive competitor rocks your boat for you. But in the short term, moving away from the familiar is inevitably going to turn some existing customers off. If it’s true that iPhone XR sales are slower than Apple expected — a big “if” at this point, given that only Apple has hard data — I think some part of it could be explained by Apple underestimating, even if only to a relatively small degree, how many iPhone owners are turned off by the unfamiliarity of the X-class iPhone experience.
Some people are resistant to change even when change is called for.