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A Simple Solution for Apple’s iPhone Troubles

January 3, 2019, 2:58 PM UTC

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You may have heard overnight that there was a little news about the first second third fourth-ranked U.S. company by market capitalization. In a blab-fest worthy of Dr. Phil, Apple CEO Tim Cook issued a 1,370-word letter to investors about a surprise 5% revenue drop, then went on CNBC for another 15 minutes of excuse-making.

Instead of bringing in $91.5 billion in the holiday quarter, as Wall Street analysts expected, Apple’s (AAPL) revenue totaled just $84 billion. That’s down from an all-time record of $88.3 billion a year earlier. The main culprit was slipping sales in China, Cook said. Apple’s stock, already down 30% in the past three months, fell another 9% in morning trading on Thursday. That pushed Apple’s market cap below those of Amazon (AMZN) and Google (GOOGL). (It was already trailing Microsoft (MSFT).) But Apple’s CEO said he remains “confident and excited” about Apple’s long-term future.

Whatever the implications for the company and the wider tech sector, the news certainly brought out the best in the tech journalism sector. Recommended reads must start with Bloomberg columnist Shira Ovide, who chastises Cook for not warning investors years earlier about the forces conspiring to stall smartphone sales. Independent Apple columnist and blogger John Gruber put out several pieces, led by a particularly unflattering comparison between Cook’s wordy tumble of excuses and Steve Jobs handling of a similar episode in 2002. Investor and writer Om Malik sees a wider problem for Western luxury brands like Tiffany (TIF), Coach (TPR) and, now, Apple—all of which have become too reliant on China.

I’ll add just one more log to the fire. Cook’s primary strategy for dealing with the global smartphone slowdown (unit sales peaked in 2016) has been a simple one: higher prices. It worked with 2017’s introduction of the iPhone X, but it appears to have failed badly for 2018’s lineup. By the end of the year, Apple and wireless carriers were offering increasingly lucrative trade in deals. When I walked into a local Apple store a few days before Christmas, a notification from Apple popped up on my screen along the lines of “You could trade in this iPhone 7 Plus right now, and get a new iPhone XR for just $449.” One simple response to the current problems: lower prices.

Or as smartphone market analyst Neil Shah put it on Twitter this morning, Apple’s China struggles arose because of “insane pricing which has backfired” plus improving local competition. “Apple still is in a great position & needs to re-calibrate its pricing vs value (proposition) strategy,” he concludes. Hopefully, Tim Cook is listening.