Prior to the release of the iPhone X, there were rampant expectations that Apple’s 10-year anniversary device would break all sorts of sales records. With a handful of groundbreaking new features and a stellar, OLED display, everyone anticipated that the hot new iPhone X would dominate the market in 2018.
However, first quarter sales have fallen well below expectations, with the price of the handset proving to be a particular sticking point for customers.
This is part of a much bigger issue with the iPhone X, however, and one that could also impact on Samsung.
Costs, Pricing and the Problem Facing Apple
When Apple decided to revolutionise its design principles through the iPhone X, one of the brands’ first moves was to integrate a premium, OLED display. Historically, Apple have built LCD screens into its iPhone range, but the thinner, lighter and more flexible properties of OLED have compelled the brand to make a seminal design shift.
The magnitude of this decision is borne out by the fact that Samsung remain the leading manufacturers of OLED technology in the current marketplace, forcing Apple to partner with the Korean brand and line the pockets of their fierce rivals in the process.
The transitions have not been without challenges, of course, as the integration of OLED displays has triggered a significant increase in manufacturing costs. To put this into context, each 5.5-inch, LCD screen used in the iPhone 8 costs Apple an estimated $52, whereas a 5.8-inch OLED display sets the brand back around $110. This is more than double the cost, and it proved to be a key driver in Apple’s decision to price that iPhone X at £999.
While this by itself is not necessarily a debilitating issue for Apple, lower-than-expected sales have made it a far more pressing concern. After all, the brand has little margin for lowering their prices, simply because the cost per unit of the iPhone X makes it prohibitive to sell for less and still generate a viable margin. It’s also fair to surmise that the inclusion of the OLED display remains a key selling point for Apple, leaving little scope to alter or refine the design.
Herein lies the issue; as Apple are left with a handset that is costly to built but prohibitively priced in the eyes of customers. This forces them into a corner where they have little room for manoeuvre in the near-term.
Why this could be a bigger issue for both Apple and Samsung in the near-term
In fairness, if this issue was restricted to a single handset it would not be so bad for Apple. After all, the brand has been forced to deal with disappointing sales figures in the past, while the existence of competitively priced, Fonehouse pay monthly phone offers have enabled customers to mitigate costs in some instances.
However, the problem could become even more pronounced with the proposed launch of the iPhone X Plus later this year. This device is scheduled to be released with a much larger, 6.5-inch OLED display, which would cost even more and drive a far higher retail price on the consumer market. Given the struggles experienced by the iPhone X, there are serious doubts about whether such a handset would generate the necessary demand or sales in the current climate.
This could potentially force a quick rethink from Apple, as they look to adapt other aspects of the specification to generate savings and create flexibility in the retail price of the iPhone X Plus.
The diminished demand for the iPhone X has already forced Apple to tailor its near-term plans, and this has had a negative impact on bitter rivals Samsung. As a result of the recent sales figures, Samsung have announced that they will cut OLED production following lower demand for the iPhone X.
So, while Apple’s diminished sales figures may theoretically represent good news for Samsung in terms of smartphone competition with the S9, there’s also a decrease in demand for the Samsung OLED displays by Apple to consider.
What About the long term? Will Apple Suffer ?
Ultimately, the collateral damage experienced by Samsung will prove to be short-term, as they’ll most likely recover the potential losses caused by Apple’s diminished demand for OLED displays.
The same cannot be said for Apple, however, who face a potentially challenging 2018 as they look to make a success of the iPhone X range.
With the initial sales of the iPhone X having fallen short of expectations, it’s unlikely that the handset will recover this deficit throughout the remainder of the year. After all, the phone will face significant competition in the form of the Galaxy S9 and Google’s Pixel 3 later in the year, while the brand are extremely restricted in terms of price and retail price.