Apple's 'Pricing Hubris' Forces iPhone Price Cuts In China

Apple's dramatic shortfall in iPhone sales at the end of 2018 has reportedly led to price cuts for channel partners selling the iPhone XR in China, although there's no indication that pricing reductions are coming to the U.S. channel.

"So far we haven’t seen any price discounts here in the U.S. through distribution," said Marco Nielsen, vice president of managed mobility services at Norcross, Ga.-based Stratix, in an email to CRN. "The U.S. is still their strongest market, so my gut feeling is that they wouldn’t need to do that here."

[Related: 5 Takeaways From Apple CEO Tim Cook's Bombshell iPhone Letter]

Apple has reduced its iPhone XR pricing by $100 for channel partners in China, according to a report from Yahoo Finance. Apple, Cupertino, Calif., did not immediately respond to a request for comment.

The reported move follows a staggering reduction in Apple's latest quarterly revenue guidance.

Citing poor iPhone demand in China and sluggish iPhone upgrades in developed markets for its fiscal first-quarter 2019 ended Dec. 29, Apple slashed its quarterly guidance to $84 billion earlier this month. That's down from a previous range of between $89 billion and $93 billion.

"As we have discussed with investors, it has been Apple's pricing hubris on iPhone XR that was the major factor in the company's December earnings debacle," said Daniel Ives, managing director for equity research at Wedbush Securities, in a note to investors Monday.

Still, “while some investors will fret around price cuts and what it means for top-line growth in the next few quarters and losing perception as a luxury smartphone, taking a step back it's all about the installed base for Apple," Ives wrote. "In our opinion Apple is facing a 'code red' situation in China and the right pricing strategy around XR and future versions will be key to putting a ring fence around the core installed base in the region."

In addition to the impact from China on Apple's iPhone results, factors affecting iPhone sales have included "consumers adapting to a world with fewer carrier subsidies, U.S. dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements," Apple CEO Tim Cook wrote in a letter to shareholders earlier this month.