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Apple Goes All Out for Profits With the iPhone X

September 13th, 2017

Apple finally launched its highly anticipated 10th anniversary iPhone X alongside the refreshed iPhone 8 and 8 Plus during its launch event on 12 September. The iPhone X packs all the premium specifications that differentiate it from all previous iPhones with a full OLED screen, dual optical image stabilisation cameras, facial recognition, etc. However, with an expected launch date of the middle of Q4, Apple’s new cash cow will have a limited impact in 2017 as retail volume sales are projected to reach 190 million units, same as the previous year. Much of these sales will be realised in 2018 once supply catches up and country availability is expanded.

Banking on its new cash cow to reignite sales

Following on from the success of the iPhone 6 and 6 Plus in 2014, Apple has struggled to make a strong impact in smartphones as Chinese companies like Oppo and Vivo have hogged the limelight with their impressive momentum in emerging markets. In developed markets, Huawei’s partnerships with established companies like Leica and GoPro have helped it to improve its brand value among consumers and drive sales of its P10.

The launch of the iPhone X is significant for Apple and the industry in numerous ways. The iPhone X is Apple’s answer to counter its declining volume sales. As it faces limited success in penetrating emerging markets like India (4% in volume share of smartphones in 2017) and Indonesia (2%), coupled with a lengthening replacement cycle for smartphones in developed markets such as the US (4% decline in share in 2017), the iPhone X will allow Apple to increase its profit margins despite selling fewer phones. Consumers in developed markets may not be replacing their phones as often, but when they do buy, they are willing to spend on higher-end models which are more expensive. Consumers will want to buy Apple products because there is an element of prestige to their ownership.

The integration of facial recognition in the iPhone X is also a step forward for the mobile payments industry considering that Apple is the second largest smartphone manufacturer in the world. With the blending of online and offline shopping experiences, such as unmanned retail stores, use of augmented reality and virtual reality to engage with brands and a shift towards a cashless shopping experience through mobile devices, smartphones will play a central role (57% of total retail consumer electronics volume sales in 2022). Apple’s integration of facial recognition will help drive the adoption rate of proximity payments and could potentially encourage more companies to invest in facial recognition technology as a secure proximity payment solution.

Grabbing a larger piece of the smartphone industry’s profits

While the iPhone X is Apple’s most expensive phone to date, at an exorbitant price of USD999, the company will be able to capture the pent up demand from consumers who have held off their iPhone upgrades in anticipation of its launch. The iPhone 8 and 8 Plus will also support demand from consumers who are unwilling to or are unable to afford the iPhone X. Apple will, however, need to expand its partnerships with financing companies and telcos to offer instalment plans for its phones to more countries, similar to what it has implemented in the US, to reduce the upfront cost of its phones. The new iPhone X will allow Apple to widen its profit margins and take a larger share of the smartphone industry’s profits, leaving its competitors further behind in the margins game.

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Karissa Chua

Karissa Chua is a Consumer Electronics Analyst at Euromonitor International. She holds a bachelor’s degree in Economics. Karissa’s research interests are in covering the competitive landscape, key industry trends, impact of changing consumer behaviour on the industry and exploring the growth potential of emerging technologies.

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