Back on Sept. 12, Apple (NASDAQ:AAPL) announced no fewer than three new iPhones: iPhone XR, iPhone XS, and iPhone XS Max. The iPhone XR was a successor to both the iPhone 8 and iPhone 8 Plus that had launched the year before, the iPhone XS was a direct replacement for the prior year’s iPhone X, and the iPhone XS Max represented a new screen size — and pricing tier — for the smartphone giant. The iPhone X was discontinued.
In September, I argued that the iPhone X was shelved because keeping it in the current lineup would be problematic. The iPhone X looks like the iPhone XS — a device that starts at $999 — but has inferior specifications in key areas (like the processor and rear-facing wide-angle camera) to the $749 iPhone XR. At the same time, due to features like its stainless-steel construction, dual rear-facing cameras, support for 3D Touch, and high-resolution organic light emitting diode (OLED) display, the iPhone X is not a cheap device to make.
There’s a reason Apple made the choices that it did in crafting the iPhone XR.
Imagine my surprise, then, when The Wall Street Journal reported that Apple had restarted production of the iPhone X. Let’s take a closer look at what the publication had to say.
Soaking up screens
In a report revealing that Apple may be providing Japan-based wireless carriers with subsidies to help them sell the relatively new iPhone XR at discounted prices, The Wall Street Journal also observed that “Apple suppliers have also recently resumed making the iPhone X, the 2017 model that Apple had stopped selling at its own stores, people familiar with the matter said.” The report explains that Apple’s supply contract with supplier Samsung Display Ltd. requires it “to buy a certain amount of the panels from the South Korean maker […].”
Since Apple has reportedly cut production of the iPhone XS and iPhone XS Max — the only two iPhones in the company’s current lineup that incorporate the OLED panels that Samsung produces — the company “is trying to fill the gap with the old device.”
Now, it doesn’t seem like Apple will be making the iPhone X broadly available again. Indeed, the report included the following piece of information:
In the past, Apple has produced legacy models for select markets where there is enough demand for those devices, the person familiar with Apple’s sales and production tactics said. The company views it as a way to fuel sales and boost margins, as the components often cost less and manufacturing equipment has depreciated, he said.
Awkward product positioning
It will be interesting to see how Apple prices the resurrected iPhone X in the regions where the device makes its return, and how the device is ultimately positioned within its product stack in those regions. Even though the iPhone X has inferior specifications in certain ways versus the iPhone XR, I just can’t see Apple reintroducing the iPhone X at a lower price than the iPhone XR.
Instead, the route that seems to make the most sense to me is for Apple to price the iPhone X at a $100 or so discount to the current iPhone XS, ultimately positioning it as a cheaper alternative to the iPhone XS but as a higher-end product than the iPhone XR.
Such a positioning is clearly set to be awkward considering that the iPhone XR has superior specifications in a number of ways (e.g. A12 Bionic chip in the iPhone XR but an older A11 Bionic chip in the iPhone X). Nevertheless, if Apple really has restarted iPhone X production, then the company may be betting that a non-trivial number of prospective customers would rather pay a little extra to get the iPhone X for the features that differentiate it from the iPhone XR, even if it means accepting the attendant sacrifices, too.
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.