We’ve seen some pretty significant iPhone price cuts in both China and Japan, and at least one analyst believes there is more to come. A report in November that said Apple was planning to cut the price of the iPhone XR in Japan was quickly confirmed, with a roughly $100 discount introduced later that month … A report that Apple would be rolling out iPhone price cuts across a range of models in China was also confirmed this month, with discounts of around 20% across the iPhone 8, iPhone 8 Plus and XR. The price cuts follow Apple’s warning that its earnings for the holiday quarter will be anywhere from $5B to $9B lower than the company originally forecast. The resulting shock has seen AAPL shares plunge further and analysts reduce their target price for the stock. Wedbush today suggests that there will be further iPhone price cuts to come. [China is critical for Apple going forward and that’s] why we expect more significant price cuts on XR over the coming months. While some investors will fret around price cuts and what it means for top-line growth in the next few quarters and losing perception as a luxury smartphone, taking a step back it’s all about the installed base for Apple. In our opinion Apple is facing a “code red” situation in China and the right pricing strategy around XR and future versions will be key to putting a ring fence around the core installed base in the region. With lower priced competition from all directions with Huawei and Xiaomi front and center, Apple needs to make sure that over the next few quarters they do not lose any current iPhone customers and thus speaks to the more significant price reductions on the way. More controversially, perhaps, the firm suggests that given the need for Services to take up more of the slack, Apple may need to accelerate the launch of its long-expected streaming video service – and that a major acquisition may be the only realistic way to do so. With services the linchpin of the Apple story moving forward, there needs to be serious contemplation within Cupertino around significant content acquisitions to drive services over the coming years. We believe a standalone subscription video content service from Apple is on the horizon for the next year; however the company is playing from behind the eight ball in this content arms race with Netflix, Amazon, Disney, Hulu, and AT&T/Time Warner all going after this next consumer frontier. While acquisitions have not been in Apple’s core DNA, the clock has struck midnight for Cupertino in our opinion and building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A around content over the coming year to “double down” and drive the services flywheel. Wedbush suggests A24, Lionsgate and Sony Pictures as the ‘highest probability’ acquisitions for Apple, with Viacom/CBS and MGM Studios ‘medium probability’ ones. It’s frequently been suggested that Apple might acquire Netflix or Disney, with other commentators equally quick to dismiss the idea; Wedbush describes both as ‘low probability.’ Photo: Shutterstock Check out 9to5Mac on YouTube for more Apple news: FTC: We use income earning auto affiliate links. More. Check out 9to5Mac on YouTube for more Apple news:<doc-sep>Apple's latest iPhone models are facing huge discounts in China as retailers try to sell the struggling devices. That comes as the top-of-the-line Apple smartphones have posted poor China sales on what experts say are too-high prices for the world's largest smartphone market and a lack of innovative features compared to local competitors like Huawei. The technology giant itself acknowledged earlier this month that unexpectedly low sales in the Chinese market would likely lead to worse-than-anticipated first quarter revenues. One of the most recent iPhone cost cuts in the country came from Suning, a large Chinese retailer, which changed the price of the 128GB version of the iPhone XR from 6,999 yuan ($1,036) to 5,799 yuan ($858) — a 1,200 yuan ($178) discount. Other third-party sellers on the site had the devices for even cheaper, offering flash sales to try to unload iPhones. One seller had a 256GB version of the iPhone XS Max, Apple's most premium device, for 9,699 yuan ($1,436), way below the U.S. firm's official selling price of 10,999 yuan ($1,628) for that smartphone. Still, that remains more expensive than in the U.S., where the same phone would sell for $1,249, according to the Apple website. And that's just on one site. Other retailers in China are also putting their iPhones on sale. Sunion, an Apple re-seller, was advertising 700 yuan off for both the 128GB and 256GB versions of the iPhone XR. E-commerce site Pinduoduo, which allows third-parties to sell products, also had hefty discounts across all of the latest iPhone models. Apple's issues in China are down to two major factors, experts and local consumers say: It got its pricing wrong, and it has failed to introduce features to excite consumers in a forward-thinking technology market. Now, analysts said, competitors have taken market share in the premium smartphone space. A matter of price In a public letter released on Jan. 2, Apple CEO Tim Cook blamed the slowing Chinese economy and rising trade tensions with the U.S. as one of the key reasons for lowering first quarter sales guidance. Experts, however, told CNBC that much of the iPhone's China problem comes down to the company setting the wrong prices. For example, Apple's 512GB iPhone XS Max, the most expensive of the new models, costs $1,499 in the U.S. But in Asia's largest economy, the un-discounted price is 12,799 yuan, or nearly $1,900 — a more than 26 percent premium. Other variations of the latest iPhone models have similar price premiums in China. Of note, the XR was meant to be the cheapest of the new models, but it has proven to be too pricey for many Chinese consumers — who were asked to pay a 28 percent premium compared to American buyers. "The trade war is background noise and more of a scapegoat excuse with the real issues being iPhone XR demand and a mispriced product in a competitive Chinese market," Daniel Ives, managing director of equity research at Wedbush Securities, told CNBC by email. "It's time for Cook and Apple to look in the mirror, take their medicine around pricing and execution and move forward with the biggest installed base in the world to turn this ship around from this dark chapter in Cupertino," he added. Apple has given no indication about whether it will cut prices in its official stores in China. The company did not immediately reply to a CNBC request for comment sent on Friday. Across China, Apple is offering a deal where it will sell the iPhone XR for 4,399 yuan ($651) if a customer trades in an iPhone 7 Plus, a two-year-old handset. That's a bid to get users to upgrade, but not all iPhone owners in China are keen on purchasing a newer device. Karen Xiao, an iPhone 7 user living in Guangzhou, said the prices of the new iPhones are too high and her current model still works fine. "For me, the function is good enough. For me, using the internet and just phones — I don't play games. So the function can satisfy my needs," Xiao told CNBC, adding that newer models don't offer "major differences" that appeal to her. The Huawei effect Despite the negative international headlines that have hit Huawei over the past few months, its consumer business continues to thrive. The Chinese technology giant replaced Apple as the second-largest smartphone player by global market share last year. It's firmly the biggest vendor in China. Chinese consumers say they've been attracted to Huawei's newest features, the price points and the fact that it's a domestic brand. "Using Huawei's mobile phones is supporting domestic brands. We hope our brands can go international," Vikey, a Guangzhou-based Huawei user, told CNBC. An attendee inspects a P20 Pro smartphone, manufactured by Huawei Technologies, during its unveiling in Paris, France, on Tuesday, March 21, 2018. Marlene Awaad | Bloomberg | Getty Images She added that Huawei phones are "cost-effective" and have good features while iPhones are "more of trend." One of the key features that Huawei introduced was a triple-lens camera on its P20 Pro, which was launched last year. "For the next 12 months, the iPhone lacks one of the most appealing features of current winners in the Chinese smartphone market, the triple lens camera. The Huawei P20 Pro led the march and other Chinese manufacturers are all scrambling to follow suit as it has been so popular," Neil Campling, head of technology, media, and telecommunications research at Mirabaud Securities, told CNBC by email. The next battleground Chinese smartphone users are already thinking about the future of their devices. While major manufacturers like Huawei and Samsung are releasing foldable phones and quad-camera handsets, devices that support 5G — the next generation of mobile connectivity — could be the next big feature consumers are looking for. The tech promises super-fast internet speeds and Samsung and Huawei both plan to release smartphones next year that will be compatible with it. Major telecommunications providers in China, including China Mobile and China Telecom, plan to begin rolling out 5G in 2019. Apple, however, is unlikely to release a 5G-capable phone until 2020 at the earliest, according to a report from Bloomberg in December. Apple CEO Tim Cook and China Mobile Chairman Xi Guohua (R) visit a China Mobile shop to celebrate the launch of iPhone 5S and iPhone 5C on China Mobile's fourth generation (4G) network on January 17, 2014 in Beijing, China. ChinaFotoPress | Getty Images<doc-sep>
Apple has reportedly cut production for the iPhone XR, iPhone XS, and iPhone XS Max twice in the past two months to accommodate lower-than-expected demand for the new phones. Apple has about nine months before it unveils its next-generation iPhones. The company has ample time to improve demand for its current phones, and a small adjustment to the price could make a big difference. Apple has an iPhone problem. For the past decade, the iPhone business has been Apple's main source of income and success. But that seems to be changing. On January 2, Apple announced that it missed its revenue targets for the all-important holiday quarter; results came in about 7% lower than expected. This led to Apple's stock taking a nosedive. Apple CEO Tim Cook blamed most of the revenue lapse on the iPhone. "Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline," Cook said in a letter to investors. Here's Cook's full explanation for why iPhone sales were so weak last quarter (emphasis ours): While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements. Given these issues, the solution should be fairly obvious: If you want these new iPhones to sell, their prices should be lower. Supply and demand Apple has reportedly cut production for the new iPhones twice in the past two months, so demand for these new phones is clearly an issue. But as basic economic theory goes, demand and supply are directly, inversely related. As demand goes up, supply goes down; the opposite is usually true as well. But price is the key: High prices usually lead to lower demand for a product. Wikimedia So, if Apple wants more demand for these new iPhones, it needs to sweeten the deal. The new iPhones are exorbitantly expensive. In fact, the starting price of the most affordable new iPhone is now 15% more expensive than it was two years ago. The iPhone 7 started at $649, but now the iPhone XR starts at $749, the iPhone XS starts at $999, and the iPhone XS Max starts at $1,099. And that's just in the US; prices get even more expensive overseas. Yikes. Prices can, and should be, flexible Apple's 2017 iPhone X was the first $1,000 iPhone to start this high-priced phone trend, but that was a completely novel phone with an all-new design. It was cute as a one-off device to celebrate the tenth anniversary of the iPhone's existence. But one year later, tons of competing phones look and even perform like the iPhone X. It's not so special anymore, but you wouldn't know that if you looked at the price. The iPhone XR and XS are still priced as if they're the only phones that can do what they do. YouTube/MKBHD The narrative of the 2018 iPhone lineup is that it's too expensive, and too similar to last year's offerings. But Apple has ample time to change this opinion; it typically reveals its next-generation iPhones in September, so the company has about nine months with these current iPhones before new ones come along. For its own sake — but also for the sake of customers — Apple should consider permanent price cuts on the iPhone XR, iPhone XS, and iPhone XS Max. A $100 price drop across all three phones would suffice. That would bring the starting price of the iPhone XR back down to 2016 levels ($649), and it would make the top-of-the-line iPhones more attractive, too, bringing the iPhone XS price down to $899 and the iPhone XS Max to $999 — the same starting price as last year's iPhone X. Those are still "premium" prices, but they're a little more reasonable.