Apple has been rejoicing its better performance in the last quarter and is hoping to finish the year on a high. The all-round expectations for 2020 too remain bright for the company. However, in the process of achieving higher numbers is Apple sacrificing profitability? Barclays IT hardware analyst Tim Long says the company has been selling its phones at a low price leading to an estimated 12% drop in its realization of average selling price over the entire 2019. This may continue in 2020 as well until the new iPhones with the 5G capability are released in September.
High Revenues from Services
Apple has been relying on the income from Apple Music and News+ to beef up its overall revenues and now Apple TV may join these sources. To be fair to the company, it has posted a high revenue of $64 billion in the fiscal fourth quarter and its earnings per share have gone up to $3.03. This beat the market expectations since the forecast was for revenue of $62.99 and an EPS of $2.48. The increase is despite Apple dropping the price of the iPhone 11 to $699, a reduction of $50 over the predecessor iPhone XR. Earlier reports had indicated that this particular model has been selling the most among the three models released this September. The same report carried the details of how the company has increased the production orders for the iPhone 11 and the iPhone 11 Pro while cutting down on the iPhone 11 Pro Max. This has been amply demonstrated in the work carried out by Tim Long at Barclays and indicates the exact loss in terms of the average selling price. The fact that Apple sold new iPads and AirPods also during this quarter should be factored in as well.
Release of the iPhone 12 Models will Reverse This Trend
The same report from Barclays goes on to predict that once Apple comes out with its three iPhone 12 models, all capable of 5G connectivity, it will be able to extract better pricing. The estimate is that on average, the iPhones would fetch the company $150 per unit.
The price versus volumes debate will however continue and the pressure on Apple will remain. There are also other imponderables like the China-US trade dispute and which way it goes. The Barclays report further states that the supply chain data will be turning over next month throwing up further challenges for the company.