Apple's Lessons Learned from Lower iPhone Demand
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York.
Where does Apple go after cutting iPhone production due to weak demand?
Where does Apple go from here after being forced to cut production of its newest line of iPhones? And what can the rest of corporate America learn from that? We'll explain in a moment. First, these money and market stories you should know. With jitters running through Wall Street almost on a daily basis, don't take your eye off of cash as a wise investment. That's the word from Goldman Sachs. The big bank issued a prediction for 2019 that the stock market is likely to turn in single digit returns and says that cash will be on par with stocks as a worthy asset for the first time in several years. You might not want to look at cryptocurrencies as an investment either.
Could higher iPhone prices be the main reason consumers are holding off upgrades?
A sell-off that began in mid-November continued into the days leading up to Thanksgiving. Nearly all the top 100 cryptocurrencies have been hit by a selling spree, most notably Bitcoin, which fell about 8% on Tuesday to about $4,200. How bad has it been for Bitcoin? It's off about 75% from its all-time high of $19,800 last December.
So, Justin, demand for iPhones is down? Is the apocalypse upon us? I guess so. No.
No, but it is sort of an object lesson in what happens when you raise prices. And it's a lesson for Apple, but really it's a lesson for everybody right now. So the prices of the new batches of iPhones are up relative to 2016. And that seems to, you know, that may have been one of the sticking points that people are having, right?
How does increased smartphone competition and substitutability affect Apple’s sales?
There are other things going on, right? There's increased competition because smartphones are more commodity-like. There's, you know, there's just the amount of choice that people have now. But it does seem that, you know, at least one element of this was the higher price.
Prices came up significantly with this new batch of phones.
Right, and that leads people to think, you know, should I switch? Should I just hang on to the phone that I have right now?
See, that's the thing, is that if their phone is working well, why rush out and spend the money?
What cost pressures are corporations facing that relate to Apple’s pricing challenge?
And I think that the consumers are becoming wiser to this idea Our own Wall Street Journal technology columnist Joanna Stern said, if you have an iPhone X, no reason to rush out and buy one of the newer ones because your iPhone X is fine.
But this is important, and not just for Apple right now, because what we're seeing right now is we're seeing a lot of cost pressures that companies are facing. So we have rising labor cost pressures. Transportation costs are up a lot. That's also kind of a labor story because it's hard for truckers and such to... to find drivers and they have to pay them more, right? And we're also going to see, we are seeing tariff costs and those could go up significantly next year. So companies have to figure out what to do.
And you write in your column that other companies should really take a lesson from this because at Apple oftentimes is seen as the crown jewel. It's untouchable. It is just whatever it touches is gold. But this stumbling block that it is seeing, other companies can see real challenges, real hurdles along the way that they have to adjust to.
How are retailers responding to rising costs and what does that mean for margins?
Right. I mean, think about it. It is right. It is harder to switch away from an iPhone than it is to switch your brand of T-shirt, your brand of toothpaste, cereal, that kind of thing. Those things are easily substitutable. Right. Once you're sort of in the Apple verse, right, you're going to it's harder to rent yourself out of it. Right. So this is important for a lot of companies. And what we're seeing is that, you know, the flip side is if you're a company, you eat the cost. And that seems to be what we're seeing from a lot of other companies. So Walmart, when they reported last week, they said that they were investing in price, which is their euphemism for cutting prices. We also saw more recently Target saw their margins down.
Kohl's saw margin down. A bunch of retailers that recently report. reported.
Why do low inflation expectations make consumers sensitive to price increases?
And that was a lot of it was about these higher costs and not passing those costs on.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
Where does Apple go after cutting iPhone production due to weak demand?
0:09–0:44
3
Could higher iPhone prices be the main reason consumers are holding off upgrades?
0:44–2:03
4
How does increased smartphone competition and substitutability affect Apple’s sales?
2:03–2:34
5
What cost pressures are corporations facing that relate to Apple’s pricing challenge?
2:34–3:37
6
How are retailers responding to rising costs and what does that mean for margins?
3:37–4:32
7
Why do low inflation expectations make consumers sensitive to price increases?
4:32–5:11
8
What broader lessons should corporate America learn from Apple’s slowdown?
5:11–6:00
Speakers
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