iPhone 8 Posts Weak Initial Sales, Pressuring iPhone X

By Tripp Mickle Features Dow Jones Newswires

Apple Inc.'s iPhone 8 posted the weakest sales of any of the company's new smartphones in recent years, according to estimates by two market research firms, raising the stakes for the higher-priced iPhone X as advance orders start on Friday.

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In the U.S., Apple's largest market, the iPhone 8 and its larger 8 Plus version accounted for 16% of all iPhone sales in the September quarter, according to Consumer Intelligence Research Partners LLC. By comparison, the iPhone 7 and 7 Plus accounted for 43% during the same period last year and the iPhone 6s and 6s Plus accounted for 24% during the same period in 2015. Other signs indicate similar underperformance globally.

Soft iPhone 8 sales stem partly from confusion over the trio of phones Apple is releasing this year -- and could reflect buyers waiting for the iPhone X, which boasts an edge-to-edge display and facial-recognition technology. It ships Nov. 3 and starts at $999.

The iPhone 8 and 8 Plus, which started shipping Sept. 22 and start at $699 and $799, offer wireless charging, improved processors and new camera capabilities over preceding models but feature the same basic design.

Many consumers have decided the improvements in the iPhone 8 are too incremental to justify the higher price tag and instead opted to buy cheaper, older models or wait for the iPhone X, said Mike Levin and Josh Lowitz, co-founders of Consumer Intelligence Research Partners.

"They signaled to their customers: Don't buy the 8. Their customers listened," Mr. Lowitz said.

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Mr. Levin expects poor sales of the iPhone 8 to weigh on Apple's quarterly results when it announces earnings Nov. 2. Sales of the device may improve after consumers can compare it to the iPhone X in stores, but he said Apple has "cornered themselves and really have to deliver this (iPhone X) extremely well."

As of a month after it started shipping, the iPhone 8 and 8 Plus combined accounted for 2.4% of iPhones in use world-wide, according to market research firm Localytics, which analyzed data from more than 70 million Apple devices. That was less than half the share claimed by its predecessors, the iPhone 7 and 7 Plus, a month after they started shipping, and the lowest for a new iPhone since at least 2014, the firm said.

The iPhone 8 got less promotional support from resellers than its predecessor. In the U.S., wireless carriers largely offered discounts on the iPhone 8 with trade-ins of old devices rather than the free iPhone 7 deals some offered for trade-ins last year, according to Jefferies.

During a call with analysts last week, Rogers Communications Inc. Chief Executive Joseph Natale said there was an "anemic appetite for the iPhone 8" across the Canadian wireless carriers' network and "lots of anticipation around the iPhone X."

Wall Street analysts have waived off tepid demand for the iPhone 8, saying weaker demand for it could benefit the company if it sells more of the pricier iPhone X. Sales of more iPhone X would boost average iPhone selling prices and potentially lift annual revenue.

Still, Apple must prove consumers will embrace the iPhone X's higher price tag -- and demonstrate that it can make enough of them. The iPhone X -- which Apple is releasing six weeks later than usual for a new iPhone -- has been dogged by production challenges, including problems over the summer that delayed typical manufacturing timetables by at least a month. It also had an imbalance of components critical to its facial-recognition hardware.

Production issues have stoked concern that iPhone X supplies will fall short of demand until the March quarter, about a quarter later than usual, said Gene Munster, who heads research at venture-capital firm Loup Ventures. However, he and analysts don't expect annual sales to suffer, so long as supply matches demand by June.

He and other observers will be watching preorders for the iPhone X, which begin Friday at 3 a.m. EST. If the shipment date for an iPhone X order is within one-to-two weeks from the order date, that would indicate weak demand, Mr. Munster said. He added that if it slips to eight-to-12 weeks from the order date, that could indicate strong demand or major production issues.

Apple Chief Executive Tim Cook is expected to speak about preorder demand and iPhone X supply during a Nov. 2 call with analysts, Mr. Munster said. More preorders of the iPhone X than the iPhone 8 would be a good sign for investors, he added, but if Mr. Cook doesn't say anything then investors "will fear the worst."

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

October 26, 2017 05:44 ET (09:44 GMT)