iPhone X is 'flagging' as customers balk at $1,000 price tag - Nomura

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Apple CEO Tim Cook.

• A small chorus of analysts says they are lowering their estimates of sales of iPhone X because it is too expensive.
• "Many component suppliers for iPhone X have seen very low shipments since Feb," a note from Nomura says.
• "We do not believe it is coincidence that the highest end of the product portfolio, the X, is the model that is flagging."

The analyst team at Nomura has joined their colleagues at Longbow Research and Bernstein in expressing alarm at what they believe are lackluster sales of iPhone X.

Nomura's Anne Lee and her team lowered their prediction of iPhone X sales for Q1 2018 (Apple's fiscal second quarter) to between 8 million and 12 million units, down from their prior forecast of 13 million to 18 million. "Many component suppliers for iPhone X have seen very low shipments since Feb, which could cause very low utilisation rate and poor mix for 1H18F," she told clients today.

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Her colleague Jeffrey Kvaal and his team blamed the price of the iPhone X, which is around $1,000 in the US and £1,000 in the UK.

The "market may no longer tolerate rising ASPs," he wrote, referring to the iPhone's "average selling price":

"One factor that is likely suppressing the smartphone market is price. We see several indications the market elasticity is falling. Obviously, Apple's iPhone ASPs have climbed from $645 in FY16; we model $742 in FY18. We do not believe it is coincidence that the highest end of the product portfolio, the X, is the model that is flagging."

He also reduced his estimate of Apple's earnings for the full fiscal year. "We thus lower our FY2018 iPhone units from 226mn to 221mn, below consensus of 224mn and our EPS from $11.56 to $11.40, also below consensus of $11.48. We maintain our $175 target and Neutral rating."

Last week, Longbow Research sent a note to clients saying that its sources inside Apple's Asian supply chain believed the iPhone X was not selling well. "The cut for 1Q is worse than usual and worse than what has happened in prior years," one source said. "The March quarter has been low and we're expecting flat production year over year," another added.

Prior to that Bernstein analyst Toni Sacconaghi Jr. published a note saying that he believed the second-hand iPhone market is cannibalising new iPhone sales. The useful life of an iPhone has become longer over time, up to four years with careful use. Many people are choosing a used iPhone on the second-hand market over the cost of a new phone. After all, the iOS experience is largely the same on all iPhone models. "The upshot is that Apple's iPhone installed base growth of *new* phones - likely the best leading indicator of future iPhone sales - may be lower than many realize, and looks to be flat in FY 18," he told clients.

Kvaal touched on that too. "As replacement cycles lengthen, the average upgrade rate is at its lowest in years. C4Q was only 7.6%, below the prior three years of 10.8%, 8.8%, and 8.4%." He believes that Apple's massive "installed base" of existing users will eventually spur new iPhone sales because "replacement rates will not lengthen forever."