Apple recently reported their earnings for the first fiscal quarter of 2020, and the
numbers surprised some analysts.
Apple has had some of their most profitable quarters ever in the last year thanks to the
sales success of the iPhone 11, but it’s also worth mentioning the struggles they’ve
faced in the process.
Because remember that the biggest Apple-related news story in 2016 was the decline of their
hardware sales, especially when it came to the iPhone.
After a decade of record-setting growth, demand for the device finally fell.
And not just for one quarter, but three quarters in a row.
That resulted in Apple’s revenue shrinking by almost ten percent, causing the company
to post an annual revenue decline for the first time in fifteen years.
So how did Apple go from shrinking iPhone sales in 2016, to surging sales in 2019?
Well that’s exactly what we’re going to find out.
This is Greg with Apple Explained, and I want to thank Squarespace for sponsoring this video.
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Now in order to understand how the iPhone 11 reignited Apple’s sales success in 2019,
we first have to learn about what caused Apple’s revenue slowdown to begin with.
And as I mentioned in the intro, that trend began in 2016 while the iPhone 6s served as
Apple’s flagship smartphone.
It was during this time that the company started to notice slowing sales of not only the iPhone,
but the Mac and iPad too.
Mac sales dropped by seventeen percent and iPad sales by six percent.
And because of this slowing growth across the board, Apple announced in 2018 that they’d
no longer be sharing unit sales of their hardware and instead only reveal revenue earned.
That way, they could prevent news outlets from running negative headlines like “Are
slow iPhone sales just a blip, or is Apple starting to struggle?”
But it wasn’t only about slowing hardware sales, it was also about where those sales
were happening.
Because around 2015 Apple identified two emerging markets where they’d like to expand their
presence, China and India.
But there was a problem.
Domestic phones in those countries are much less expensive than international devices
like the iPhone.
And it has a lot to do with the extra tariffs and taxes imposed on imported devices.
And that’s exactly what prompted Tim Cook to visit India for the first time back in
2016.
He wanted to negotiate with their prime minister Narendra Modi and reduce the tariffs Apple
had to pay to get their iPhones to market in India.
But Modi didn’t budge on his position, and that prevented Apple from seeing increased
sales success in the country.
A similar situation played out in China.
Although iPhones were viewed as a desirable, luxury device, most Chinese customers considered
it an unnecessary expense.
Mainly because the app called WeChat, which everyone in China uses to do almost everything,
is available on iOS and Android.
So there isn’t much of a reason for users in China to spend hundreds more on an iPhone
rather than a more affordable Huawei phone.
So as a response to slowing sales and failed attempts at capitalizing on foreign markets,
Apple began increasing hardware prices across the board.
By 2018, the Mac Mini, MacBook Air, iPad Pro, and even accessories like the Magic Mouse,
Magic Keyboard, and Apple Pencil all received price hikes in a way that was unprecedented
in Apple’s history.
But there’s one product in particular I want to focus on, and that’s the iPhone.
Because the price increases it received was quite significant.
In 2016, the flagship iPhone 7 cost $650.
One year later, the iPhone 8 was priced at $700, a $50 premium.
But the iPhone 8 wasn’t even Apple’s flagship device, that title belonged to the iPhone
X, released the same year.
And that premium model carried a record price tag of one-thousand dollars.
That’s $350 more than the flagship iPhone 7 released just one year earlier.
But Apple didn’t stop there, they pushed the iPhone’s price even higher with the
XS Max in 2018, which retailed for $1,100.
But it wasn’t only the premium iPhone models that ballooned in price.
The so-called “budget” iPhone XR did as well, coming in at $750, which was $50 more
than the iPhone 8, and $100 more than the 2016 flagship iPhone 7.
And this dramatic rise in the iPhone’s cost took a toll on sales, with the iPhone XR suffering
from less pre-orders compared to previous models, weaker demand, and two separate cuts
to iPhone production within two months.
It was clear that customers were getting tired of paying more for iPhones year after year,
and so in 2019 Apple made a decision that not many people were expecting.
They actually reduced the iPhone’s price for the first time in over a decade.
The iPhone 11 received a $50 price drop compared to the previous iPhone XR, coming in at $700.
And that made all the difference when it came to sales performance.
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Alright now as I mentioned earlier Apple no longer reports unit sales of their products,
so we’re forced to rely on third party analysts to make as accurate predictions as possible.
But we’re fairly certain that in the first month of sales, the iPhone 11 outsold the
XR by about fifteen percent, with twelve million units sold.
This outperformed even the most generous predictions by analysts, and led to Apple increasing production
of the iPhone 11 by 1.6 million units.
But the iPhone 11 wasn’t only experiencing sales success in the US, it was also doing
well in the emerging markets that Apple had tried to capitalize on in 2016.
For example, in China, the iPhone 11 drove a sales increase of 18.7% compared to the
previous year.
And this number is especially impressive for a few reasons.
First, the overall smartphone market in China experienced a 13.7% decrease during the same
period, proving strong demand for the iPhone despite a declining market.
Second, Apple had been struggling to stay afloat in China amid a trade war with the
US and Chinese governments, with both countries threatening increased tariffs on imported
products.
And although Apple escaped the economic effects of this trade tension, they didn’t escape
the social implications of being an American company selling products in China.
You see, in addition to trade disputes, the US government banned domestic telecommunication
companies from buying foreign equipment due to national security concerns.
That meant Chinese companies like Huawei couldn’t sell their technology to US companies like
AT&T or Verizon to develop their 5G infrastructure.
And if that didn’t upset the Chinese government enough, President Trump also signed an executive
order banning Huawei from buying US technology without government approval.
So companies like Google were no longer allowed to offer apps like Google Play on Huawei devices.
And all these actions against China caused an anti-American movement among some of their
citizens, who set their sights on US companies like Apple, igniting a boycott and a declaration
of Huawei’s superiority.
So when you consider this hostility toward Apple among Chinese citizens, the trade tensions
between the US and Chinese governments, and the country’s declining smartphone market,
Apple was expected to suffer a fifty percent drop in Chinese iPhone sales in the second
half of 2019.
But the iPhone 11 was such a compelling device, that it managed to defy unprecedented odds
in such a significant way that Apple achieved sales growth in China for the first time since
2015.
And that achievement alone is incredible, but things become even more impressive when
considering the Indian market.
As I mentioned earlier, Tim Cook visited India back in 2016 as part of an effort to boost
sales in the country, but 2017 and 2018 saw no significant returns on the company’s
investment.
And that’s likely due to the extraordinarily high price of the iPhone in a market that’s
very price sensitive.
But Apple wasn’t standing idly by during that time.
They actually began assembling the iPhone XR in India with the help of Foxconn’s facility,
which allowed Apple to finally avoid the tariffs and penalties associated with imported products.
This resulted in a 35% price drop for the iPhone XR in 2019, and combine with the lower
price of the iPhone 11, Apple was able to turn around its sales performance in India
by doubling its market share from one to two percent.
And although that may not sound significant, the Indian market in one of the largest in
the world.
So a company growing their market share by one percent in a year is quite impressive,
especially if that growth can be sustained into the future.
Now we’ve covered how the iPhone 11 was able to turn around Apple’s sluggish sales
domestically and internationally and prove to be a very successful product for Apple.
But something you may be asking yourself, is why?
Why was the iPhone 11 able to deliver all this success for Apple and not models that
came before it like the iPhone XR or iPhone 8?
Well, I think there were many variables at play, but the foundation of the iPhone 11’s
success can be attributed to the fact that it hit the sweet spot of what consumers wanted
from an iPhone.
It had the same incredible camera features as the premium iPhone 11 Pro, except for 2x
optical zoom.
It had even better battery life than the previous XR, it featured a glass design that was more
durable than ever before, and all of these features came at a cost that was lower than
any iPhone since the 8.
A model that paled in comparison to the feature set that the 11 offered.
Now what did all of this sales success mean for Apple?
Well, the company ended up earning $91.8 billion in revenue for its first fiscal quarter of
2020, which actually ran from September to December 2019.
That was an increase of 9% from the previous year, which not only outperformed analyst
expectations, but also set a new quarterly record for Apple.
So it’s clear that iPhone sales are back on track with the 11, and even sparking faster
growth than ever before in vital international markets like China and India that Apple has
been working to expand into for years.
Now it remains to be seen if this growth can be sustained, but it’s definitely good news
for a company that’s been struggling to combat slowing hardware sales.
Alright guys thanks for watching and I’ll see you next time.