Apple's (NASDAQ: AAPL) latest iPhone XR might not be the big seller that either the company or its investors had hoped.
According to a report from Nikkei Asian Review, Apple told contract manufacturers Foxconn and Pegatron "to halt plans for additional production lines dedicated to the relatively cost-effective model that hit shelves in late October."
Image source: Apple.
It's not all bad news, though. According to the report, Apple has boosted its orders for last year's iPhone 8 and iPhone 8 Plus by 5 million units to 25 million.
Let's take a closer look at what might be going on.
A strange situation
Apple's iPhone 8 starts at $599 for the 64 GB version and goes to $749 for the 256 GB model. The larger version, called the iPhone 8 Plus, begins at $699 and goes to $849 for those same configurations.
By contrast, the iPhone XR comes in three storage configurations: 64 GB, 128 GB, and 256 GB. These are priced at $749, $799, and $899, respectively.
Unsurprisingly, the iPhone XR is more expensive than either the iPhone 8 or iPhone 8 Plus at comparable storage configuration -- it's the newer, flashier device. What's interesting, though, is that the 256 GB version of the iPhone 8 is priced identically to the 64 GB version of the iPhone XR and the 256 GB version of the iPhone 8 Plus is more expensive than the 128 GB version of the iPhone XR and only slightly less expensive than the 256 GB version of the iPhone 8 Plus.
Different customers might value different things. So, for example, someone who really values having as much storage space as possible in their devices might be more interested in a $749 iPhone 8 with 256 GB of storage instead of paying that same amount for the 64 GB iPhone XR.
If a customer picks a $749 iPhone 8 over a $749 iPhone XR, Apple's still getting the sale and the same amount of revenue. It's hard to tell which product is more profitable for the company, however, without knowing the cost structures of each device.
Another thing to consider
Here's the full quote from Nikkei Asian Review's source with respect to Apple's production demands:
For the Foxconn side, it first prepared nearly 60 assembly lines for Apple's XR model, but recently uses only around 45 production lines as its top customer said it does not need to manufacture that many by now.
This, Nikkei Asian Review added, means that Foxconn is set to "produce around 100,000 fewer units daily to reflect the new demand outlook -- down 20% to 25% from the original optimistic outlook."
While it clearly would've been better for Apple if demand were so high that it needed to use up all of the production lines that Foxconn put into place, it's also important to keep in mind that trying to forecast demand for a single iPhone model -- especially when the portfolio is now quite broad, consisting of seven distinct models in multiple storage configurations -- isn't easy.
Indeed, that Apple is reportedly not maxing out its iPhone XR production capacity and actually having its partners produce more of the older iPhone 8 and iPhone 8 Plus is a good illustration of that.
I wouldn't be surprised, then, if Apple and Foxconn worked together to put in some extra capacity to make sure that they could quickly respond to upside in demand and they're simply finding that they don't need to utilize it.
With that said, it's still very possible that even if Apple and Foxconn had put in some extra production capacity that demand for the iPhone XR still isn't as robust as Apple had expected. It's hard to really know exactly what's going on unless Apple itself were to share its detailed thinking publicly -- something that's it's extremely unlikely to do.
More From The Motley Fool
- 10 Best Stocks to Buy Today
- 3 Stocks That Are Absurdly Cheap Right Now
- 5 Warren Buffett Principles to Remember in a Volatile Stock Market
- The $16,728 Social Security Bonus You Cannot Afford to Miss
- The Must-Read Trump Quote on Social Security
- 10 Reasons Why I'm Selling All of My Apple Stock
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.