WSJ: How Huawei cleaned Apple’s clock (video)

From Jay Greene and Yoko Kubota’s post-mortem in Friday’s Wall Street Journal ($)

A prime example of Apple’s execution woes is the iPhone XR, its more modestly priced device among three new handsets it released last fall. For China, Apple had placed big orders for the XR, anticipating strong demand after it went on sale in October, according to a person familiar with the matter.

Apple is now grappling with excess XR inventory, this person said, a tough pill to swallow for a CEO who once described inventory as “fundamentally evil.”

Apple may have underestimated how competitive domestic smartphone makers have become, analysts say. With a starting price of 6,499 yuan ($945), the XR is priced well above a competing model from Huawei that also launched last year, the Mate 20, starting at 3,999 yuan. The Mate features a triple camera system while the XR features only a single camera.

Cue the video:

My take: This Journal round-up—sure to be widely read by investors—touches all the bases, from the iPhone vaunted price elasticity that “snapped” in the holiday quarter to management’s conspicuous forecasting pratfall.

Apple often had the ability to forecast iPhone sales “to the third decimal,” said Daniel Ives, a Wedbush Securities analyst. That is what makes the revision so stunning, he said. “This is the biggest miscalculation by Apple in the iPhone era.”

The macroeconomic issues cited by Mr. Cook probably accounted for about 20% of the shortfall, Mr. Ives said. “Eighty percent of it is that Apple just swung and missed,” he said. “Fundamentally, this was an Apple execution issue.”

12 Comments

  1. Rick Raphael said:

    The US government has blocked the sale of all Huawei products for security reasons.
    Huawaei’s CFO is under arrest in Canada awaiting extradition to the US.
    Huawaei is one of China’s biggest companies.
    Chinese businesses are now threatening employees with termination if they use iPhones instead of Chinese products.

    This is international politics my friends. Replace US with China and Huawei with Apple in the sentences above and imagine the response in this country. And it should be clear why Apple’s revenue shortfall was limited to China.

    For obvious reasons Tim Cook can’t say this. But iPhones didn’t suddenly become more expensive than the competition overnight. This is the US vs China.

    7
    January 4, 2019
    • Fred Stein said:

      Well said, all excellent points. Adding:

      Huawei’s CFO is the daughter of the founder who is an ex People’s Liberation Army Officer.

      In China, WeChat is the de facto standard. SmartPhone features and brand don’t matter that much.

      2
      January 4, 2019
    • S Lawton said:

      Politics of not, Apple relies on China for a great deal of its revenue. And once the Chinese switch to another smartphone, what will be their impetus to switch back.

      0
      January 4, 2019
  2. John Butt said:

    The impact of exchange rates should not be lost. Take a look at the most common (Yuan, EU) and the US dollar has increased by 10% in the last 6 months. 10% is a big price increase on an original target price for a design.

    0
    January 4, 2019

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