Report: iPhone Sales Fail Triggered “Fire Drill” at Apple

Posted on December 4, 2018 by Paul Thurrott in Apple, iOS with 60 Comments

A new report details the emergency response within Apple when it became clear that its new iPhones were not selling as well as expected.

“Company executives moved some marketing staff from other projects to work on bolstering sales of the latest handsets in October, about a month after the iPhone XS went on sale and in the days around the launch of the iPhone XR, according to a person familiar with the situation,” a new Bloomberg report explains.

That source referred to the reaction within Apple as a “fire drill,” and said that it led quickly to strategy changes. Among the changes, Apple is now offering its customers double the normal amount on trade-in devices for those who buy a new iPhone. This effectively lowers the price of a new iPhone … without Apple having to go through the embarrassment of actually lowering the price.

Bloomberg notes that Apple on Sunday actually went so far as to denote a starting price of “$449*” for the iPhone XR on its website. The iPhone XR actually starts at $749.

But as the footnote at the bottom of the site explains, ” $449 reflects [the] price of iPhone XR after trade-in of iPhone 7 Plus … Trade-in values vary based on the condition, year, and configuration of your trade-in device, and may also vary between online and in-store trade-in.”

This change, which Apple’s site says is for a limited time, suggests that Apple’s strategy of raising prices to make up for diminished sales—what I called Apple Jacked—is not working. And the timing of the “fire drill” at Apple is interesting: In the one month between the launches of the iPhone XS/XS Max and iPhone XR, Apple suddenly discovered that things were going south. And that the iPhone XR was not going to solve the problem.

The good news? Even a diminished iPhone is only diminished in the context of Apple’s size and success. Over the last year, Apple earned $167 billion in revenues from the iPhone alone. By comparison, Microsoft—all of Microsoft—earned just $110 billion in its most recent fiscal year. And Microsoft, by all accounts, is doing just great.


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Comments (60)

60 responses to “Report: iPhone Sales Fail Triggered “Fire Drill” at Apple”

  1. red.radar

    I figured something was up when carriers were extending bogo deals during the holiday season. I switched carriers and thus got my phones 1/2 off. Carriers know already that the pricing is wrong and they don’t want to be stuffed with inventory.

    They are good phones but the pricing is just wrong. Going to be a tough Q4 call for apple next year

    maybe be we see a retooling of the offering and product line changes. Touch ID make a comeback ? Small iPhone ? Better cameras?

  2. jjonas51

    I, as an iPhone 7+ user, will not pay in excess of $1000 for a phone, especially one with a notch.

    Someone else made the comment that we've reached a point where the phones do just about everything we need them to and I agree.

    Now if I could just get the weather to display on my lock screen!

  3. UbelhorJ

    When you charge as much for a phone as you do a laptop, people will treat them as such. If it still works, and has an Apple logo on it, no need to pay $1000+ for a new one.

    My wife used her iPhone 6 until this year when it finally became unusable due to the battery. The new ones don't offer anything new for her. She's thrilled with her new OnePlus. It costs half as much and also has a Facebook app. That's all she cares about.

  4. DaddyBrownJr

    I don't understand the logic behind giving a higher trade-in to existing iPhone users. Don't they want to entice Android users to defect? How do they grow their base by just getting existing users to upgrade?

  5. Winner

    Greed finally bites in the ass.

  6. soundersfan

    Depending on your iPhone 7+'s configuration, you can almost certainly get more than $300 by selling online. shows the average selling price north of $300 today So ya, do the trade in and give Apple even more than $749 in value.

  7. jdgreen

    I may LOVE Apple products but ENOUGH ALREADY Apple. There are ONLY So Many Fools on EARTH. You have finally found the PRICE that PEOPLE WON'T PAY. Damn you are GOOD but NOT that DAMN GOOD.

  8. romanoc

    I for one made the decision when my Macbook Pro died a few months ago to switch over to a Dell XPS, rather than buy a new Macbook Pro at almost double the price for the same specs as the XPS; i would be able to handle maybe a $300-$400 premium for the better Mac build quality, but not double the price!

    Same story i'm afraid for the Ipad Pro....way to expensive for what it is since, despite Apple's marketing claims, it isn't a computer with its very limited IOS that doesn't support a mouse/trackpad or real windows or external storage!

    I guess for now the only product i will keep buying is the iphone since I like FaceID which isnt yet available anyplace else and i like the ability to upgrade IOS unlike Android phones where its not possible unless the manufacture releases their update...but at the crazy prices smartphones have reached, i will try to keep it for as many years as i can before i upgrade!

    • puggsly

      In reply to romanoc:

      Not sure what you configured but the Dell XPS 13 quad core i7 vs 13 MacBook pro quad core i7 was $1500 vs $2000. Now the dell had a higher res touch screen but the MacBook pro had a faster CPU, memory, SSD and Graphics. Now had I went with the lower end display on the Dell it would have been more like $1250.

      I'm just saying, macs are expensive you don't have to exaggerate it. There is a $500 premium on a $1500 computer but there are some premium features too.

      • romanoc

        In reply to puggsly:

        I configured a 15 inch Macbook Pro with the new Vega 20 GPU so it was closer to the power of the XPS with its GTX 1050ti, and that pushed the price to over $3K; all other specs where the same on the XPS 15 and the Macbook Pro 15. The XPS 15 i admittedly got a decent price on because various stores were discounting it in my area whereas the only deals i saw on a Macbook Pro were for the one with the Radeon Pro 560x which unfortunately is a lot slower than the GTX 1050ti from what i am reading...

  9. SupaPete

    I am very glad that their strategy of way, way over exaggerating with the over charging is not working out as they wanted.

    Not because i am some weird anti Apple fanboy, i actually develop for all major platforms and have many Apple devices (for which i also develop), too.

    I WANT Apple stuff to be best in class. I want them to be awesome devices where i feel like the price and device meet at a balance where i feel the price is justified for this stellar total package.

    The iPhones are actually great devices and as developer i can say with constantly tested assurance, that yes, for ARM devices, Apple ones are currently hands down far and away the best performance having ones.

    not even a competition, the others are all like 1-2 gens behind on that front.

    But: That doesn't change anything about the point that the prices for Apple's whole lineup have gone from sorta still acceptable Apple tax of a 100-200 for a phone into regions where the price of a large new iPhone for example is just not reasonable enough at all anymore.

    (And anyone not an Apple stock holder or blinded fanboy would agree).

    It also doesn't make sense to compare Apple phone prices to other flagships and say: hey, see, some of the others price em in similar ranges!

    First most others at most price them in similar ranges in the way higher storage options and second, most others lower their prices pretty quickly after each launch so one can then just 2-3 months later get the latest best Samsung device for example for a quite reasonable price.

    not so with Apple.

    And that's for the iphone, still the best total package most competitive product they have in my eyes.

    For all others they offer a way worse total package in comparison and hence the over pricing makes even way less sense in all other product categories.

    So yeah, regarding all that, i would be quite happy if their way over pricing turns into way lower unit sales numbers than they'd hope for so they have to revise that strategy and ultimately revert it again, at latest within a year or two i hope.

    I don't see the current slow sales as long term indicator, but if it hoolds up over the christmas season and then the first 1-2 quarters next year are of course even slower than that as usual, yeah, maybe it hopefully makes them reconsider things.

  10. christian.hvid

    "Apple earned $167 billion in revenues from the iPhone alone"

    So, they made $168 billion in total? :)

  11. Sir_Timbit

    Admittedly it's a long time ago, but Apple lowered the price of the iPhone before--they dropped the price of the first gen by $200 if I recall correctly. So it's not impossible. But I suspect they'll keep with the gift card offers a la Black Friday/increased trade-in value for now to save face.

  12. aljfischer

    I was hoping that "Fire Drill" meant more engineers and QA.

  13. sharpsone

    Phones are going the way of personal computing, sure every new year comes with shiny hardware that looks better than last years, but where's the incentive to upgrade? Performance and the camera can only take you so far most gains are on the software side. Apple knows this that's why they impeded the performance of older devices via IOS updates, The reality is phones are just another means to computing and at first everyone was excited but as the years go by consumers are more educated and question the need to upgrade on an annual basis. It's like burning money just to say you have the latest generation that looks super cool until you slap an otter box around only to see it's beauty ripped away like a Hollywood A-lister who opted for plastic surgery in Honduras to save a few bucks. This market has matured and consumers are taking notice...the split screen phone might be the kick in the butt this market needs.

  14. irfaanwahid

    It's a wake up call for Apple.

    1) They must innovate. They cannot reuse same old designs over and over again. iPhone 6 to iPhone 8!

    2) In Kenya where I live, there is no iPhone (2018 models & iPhone X) that is less than $900. Even the XR costs about $950. It's ridiculous.

  15. locust infested orchard inc

    Let's be honest, though Apple's devices have seen little in the way of innovation over the last few years, boy have their Bionic ARM SoCs seen some pretty amazing performance improvements within the same period.

    The A12X Bionic is something, and Apple are gonna be producing ever increasing faster processors that will eventually compete with Intel CPUs for the budget/tablet end of the market. And who knows within five years, Apple may have an Intel Core i3 killer.

    Got to give credit where credit is due.

  16. safesax2002

    Something tells me we're going to see a needed price drop (an actual price drop; not an increased trade-in) in Q1.

    • Thomas Parkison

      In reply to safesax2002:

      Me too. They're going to have to if sales numbers continue to be bad.

      I'm holding onto my iPhone 7 Plus because of the price of the new phones. They've got to be out of their minds charging nearly $1000 for the device and then there's another $300 if you want AppleCare Plus. Holy crap!

    • MikeGalos

      In reply to safesax2002:

      I suspect that won't actually happen. They'll find lots of promotional ways to drop the effective price but an actual price drop would lower the sense of "prestige" that they count on. They'll make less iPhones, they'll make less money but they'll ride it out rather than downgrade the brand image.

  17. Untitled1

    I think we reached the point where smartphones were pretty much as capable as we needed them to be 3-4 years ago, and the subsequent cost inflation without an equivalent increase in capabilities has people questioning why they should upgrade for something that isn't a compellingly superior experience.

  18. rkpatrick

    They're selling it wrong.

  19. bharris

    Phones are becoming like PC's....The one that you have is good enough for the vast majority of people. There will always be that small group that wants the latest but I think even that group has shrunk drastically. The truth is, as much as phones costs, typical people are going to use them as long as they can. Other than practically giving them away, I don't think Apple can do much. The market is just saturated.

    • red.radar

      In reply to bharris:

      Can you imagine a family of four upgrading all lines to latest and greatest every 2 years ? I find it hard to believe apple really thinks people are going to spend what amounts to an epic family vacation for replacement every two years.

      And then consider how hard it is to upgrade a phone ... personal data, apps, important data within apps, settings, and connected devices that pair to the phone .... it’s a pain that no one wants to go through for “a little better than before “

  20. Rob_Wade

    I just don't care about Apple. In fact, I'd love to see the company completely collapse. Oh, well, I dare to dream.

    • Jeffsters

      In reply to Rob_Wade:

      Really? The only competition on the desktop or mobile? Make no mistake dude...Windows and Android are better because Apple exists. Vote with your dollars and be thankful. Oh...though I think you really do care...or you wouldn't have posted. I don't care about Windows or Android which is why i don't waste my time reading or commenting. Come care!

    • pecosbob04

      In reply to Rob_Wade:So if Apple were to completely collapse, do you think that would be a good thing for the economy? You need to think like an adult not like a jilted teenager. My guess is Apple doesn't give a f&$k about Rob_Wade either.

  21. MikeGalos

    The "good news", though, is only good news for short-term investors. And based on the stock price dropping over 20% in the last two months, even they aren't taking that as good news.

  22. dcdevito

    I listened to Recode's latest podcast (only because they were discussing the recent market cap news between MSFT and AAPL) and while I despise those two hosts Scott Galloway did hit the nail on the head when he said "when iPhone sneezes, Apple gets a cold". Couldn't agree more.

    Between Edge being replaced and now reading this, not going to lie, today is a good day.

  23. NT6.1

    Burn. You deserve this, Apple. Next year will be very interesting. Samsung is already shifting to foldable devices while Apple still sells LCD Smartphones. LMAO!!!

  24. PeterC

    Bloomberg and apple really are having a public ding dong arn't they - allegations and counter claims. I didn't notice price reductions here in the UK. Maybe the US is experiencing a sales problem?

  25. Tomworthjr

    I can't see Apple's strategy, if there is one, over the past two iPhone iterations - other than "raise the price, and raise it WAY MORE than even those who expect it to be raised could possibly expect." Battery life never gets noticeably better (still runs out before day's end, as it always has); display is still so good that you can't tell if it's any better or not, unless you do some side by side with an older one, and even then it's difficult; iMessage is still a lock in; cloud Photos still too confusing regarding what/how to remove from phone while keeping it in the cloud,; camera is no longer the best, not by a long shot, but still good enough, while they develop and tout gee-whiz features that nobody uses after initially trying them out and showing their friends. Still way too restrictive on app icon layout/positioning, as well as all other user interface freedoms. Regarding both hardware and software, Jobs seemed to have no problem telling whoever stood in front of him that the result of their team's effort sucked and that they needed to do much better. Is someone still saying that to Ive and to whoever's in charge of their abysmal software non-greatness? With so many nonsensical design decisions in both hardware and software, it seems that there is no one with enough taste, vision, and power to call people on their design b.s. Other than shockingly high price increases that a billion iPhone buyers do not have the stomach for, what is Apple's iPhone strategy? I can guess what I think Google and Microsoft and even Samsung are trying to do, whether or not those are smart or successful, but at least I can kind of see what they are trying to do. Apple, other than get more money out of people via 20% higher phone prices and App Store 30% extortion fees, seems to be defined by one thing only: identify the cash cows, and milk/slaughter them for all they're worth (+ 20-30%).

    • puggsly

      In reply to Tomworthjr:

      Maybe they are thinking about how to drive the industry to larger displays without making larger phones aka: FaceID

      Or how to move the industry forward with AI by creating dramatically faster Machine Learning co-processors.

      Or moving more traditional desktop processes to mobile by pushing CPU performance well beyond what has been done?

      Maybe the consistency of well aligned icons, just works better?

      I'm guessing you are talking about iCloud photo library which dynamically clears storage as necessary (who could ever figure that out?).

      We will see how the numbers play out, but I think fears of lower than expected sales will prove out to be overblown and Apple will shift prices if necessary.

  26. Pierre Masse

    It is somehow pleasurable to see Apple stumble a little bit.

    • falonyn

      In reply to Pierre Masse:

      I think the reason for this, for me, is that Apple and its fans will do whatever they can to spin every decision and step made by Apple is genius. Microsoft fans, on the other hand, ten to be more realistic and express dissatisfaction, rather than doing backflips to justify every decision.

      For example, when Apple fans said slowing iPhone was a genius move and the only misstep was not being more clear in their messaging.

      I like that Apple is so successful and it has really pushed the PC and phone markets to make great hardware to compete. I won't buy their products though, and like you, get some satisfaction seeing them have to struggle a bit. Even if struggling is still, in reality, being very successful comparatively.

  27. Tony Barrett

    Apple just aren't innovating, and haven't done for ages. Releasing a 'new' model each year, claiming it's better than the previous one and slapping a higher price tag on it just doesn't cut it anymore. Apple have lost their way - finally. They don't seem to have anything left in the tank, and have been coasting for a long time now. They cannot rely on expecting customers to pay more and more each year for a product that looks and operates exactly the same as the previous one. It's a wake up call, but I agree, they need to stumble a lot further, and get off their high horse.

  28. kroembke

    I have been a loyal iPhone user since I my first smart phone purchase of an iPhone 4. No more. My iPhone XR is the MOST EXPENSIVE phone I have ever purchased and I will not be buying another for me or my family. I think Apple tries to give their customers the best tech, but... it does come at a price-- a big one.

    There are significant new offerings from everyone (Google, Samsung, etc.) and I may be enticed to switch in the near future.

    $1000 for yet another computing device is too expensive for most people. My family consists of five persons, so the upgrade costs of new phones is rapidly getting out of control.

    Smartphones are a commodity market now. The same dynamics that used to work in the PC marketplace are at work now-- in full force. Apple cannot continue to charge unreasonable premiums for their products. Some premium-- yes, because they do SOME things better than others.

    Every advantage they have will continue to erode unless they make a quantum leap like they did with the iPhone (don't hold your breath) I do not think the current leadership of Apple will deliver products that anticipate the market like they did when Steve Jobs was at the helm.

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