- Apple stock is now trading in bear territory as it continues to fall on reports about Apple engaging in promotional activity over the holiday season.
- Apple has cut iPhone 6S price in India while channel checks by Wall Street analysts have revealed that Apple Watch is being heavily discounted.
- What could be behind these price cuts?
After trading in bull territory for much of the year, Apple stock is now firmly in bear territory, down almost 3% YTD, after a series of developments sent investors scampering for the hills. First there were reports from several analysts that channel checks had revealed that Apple (NASDAQ:AAPL) was discounting Apple Watch quite heavily in certain markets. Pac Crest's Brad Erickson said that his checks had indicated that Fitbit holiday sales were exploding, and 30% of stores had been experiencing temporary sellouts especially or the highly popular $150 Charge HR band. But even more worryingly Erickson said that he had been encouraged by discounting by rivals Garmin and Apple.
In an earlier report, and somewhat a consolation for Apple Watch, Piper's Erinn Murphy reported seeing heavier than usual promotional activity at Fitbit stores, but added that its peers had been discounting more heavily than Fitibit. Fitbit trackers continue being wildly popular, and owns 7 out of 10 of Amazon's sports/fitness bestseller rankings.
The second report was about Apple heavily discounting its iPhones in certain international markets. According to the reports, Apple has slashed iPhone prices in India after disappointing sales over Diwali. The price for the basic 16GB iPhone 6S has been slashed from $935 previously to $785-$830 currently, representing a price cut of about 16%.
This is certainly bad news considering that India has become one of Apple’s fastest growing markets, with iPhone sales estimated to have grown 97% during the last quarter, quite similar to China’s 99% growth albeit from a much smaller base. Although Apple does not break out its sales in the country, estimates are that Apple will sell close to 3 million smartphones in the country, or ~2% of its iPhone sales in 2015.
Prepping for new product launches
It’s very likely that Apple is heavily discounting Apple Watch and iPhone 6S in preparation for the launch of new models in 2016. By getting rid of stale inventory, Apple might be trying to stimulate demand for its upcoming product launches. It’s estimated that Apple will launch a second-generation Apple Watch in March 2016. According to 9to5 Mac, Apple will launch the sec-gen Apple Watch, which has been dubbed Apple Watch 2, in March (the website has historically been pretty accurate at predicting Apple’s new product launches).
Apple will also launch a smaller 4-inc iPhone 6c during the March event after it emerged that some people prefer a smaller iPhone 6 since they find the larger-screened 4.7-inch iPhone 6s and the 5.5 iPhone 6s Plus a bit cumbersome to use.
Other sources say that Apple will launch iPhone 7 in September 2016, meaning that Apple plans to launch at least 3 new major products in 2016. It probably has not come as a surprise that Apple has chosen to discount iPhone 6 in India. After all, Apple Music subscription fee in India is $2 compared to $10 in other geographical regions. Apple sees India as its next growth frontier, and is doing everything it can to build a loyal following of Apple customers in the country.
It’s estimated that India had 116 million Internet-enabled smartphones by the end of 2014, with that number projected to grow to 369 million units by 2018. Apple is trying to compete with entry-level to mid-level smartphone players in India including Intex, Micromax, Karbonn, Lava and a host of Chinese players led by Xiaomi.
Investors have been super finicky about new Apple products in the post-Steve Jobs era. While investors will quickly point that products such as Apple Pay and Apple Watch have been flops, the fact of the matter is that not all products launched during Steve Job’s tenure were hits either. Moreover, Steve Jobs arguably had an easier job of taking iPhone sales from 1.39 million units in 2007 to about 40 million in 2010 compared to Tim Cook who took over from there and now sales are approaching 200 million per year, about 5x what Jobs managed.
It would be wrong to label Apple Pay a failure at this point. Apple Pay has not failed to take off in the U.S. because it’s a poor product but simply because there is little demand for mobile payment services in the country. Perhaps investors should wait and see how it performs when it launches in China in 2016, a country where mobile payments are vastly more popular.
As for Apple Watch, Apple has a good chance to correct some of the mistakes it made with first-gen Apple Watch, especially with regards to pricing. If Apple Watch hopes to truly compete with the likes of Fitbit, it will have to do so at lower price points. Let’s wait for March and see if Apple has any new tricks up its sleeve that will change that and fire up Apple stock price.