Apple introduced their latest gadget to the market in September; iPhone 5; a beautiful slim smartphone that is at the top of the range of the smartphones competing with another top of the range Samsung Galaxy SIII. However, one week and five million unit sales later, there is a sudden issue. Apparently, five million units of iPhones sold within the first week is below the expectations of the analysts! This is because the analysts were thinking that the company is going to sell at least 50% more; 7million to 10 million units. The reason; running out of stocks.
There were complaints with the previous models of iPhone stating that the chassis of the phone is made of lightweight aluminum and it scratches fast compared with the other phones. The company shrugged off the quality concern stating that it is normal for the phone to scratch when using. However, the company behind the scene has been working feverishly to correct the issue. Foxconn manufactures the chassis and the issues of quality at the factories led the workers stopping the work for a while. Even though Foxconn and Apple are quiet about the issue, this has prevented them from manufacturing estimated 10 million phones ready for the first week in the market.
The company’s shares plummeted almost 10% due to this and the shareholders have lost a wealth of $60 billion due to this drop in value! While in any standard 5 million phones is a considerably high number, the expectations from Apple is extraordinary in any context and the company will lose considerable wealth if they fail to deliver these extraordinary expectations from the market. Thus the cost of improving the quality of chassis in short term for apple shareholders was $60billion. However, it is likely that they have saved more over the long run due to correcting the quality concerns which the phone had.
Extremetech, (2012), Apple’s market value drops $60 billion following iPhone 5 quality control issues, http://www.extremetech.com/computing/137707-apples-market-value-drops-60-billion-following-iphone-5-scuff-quality-control-issues, October 29, 2012.
I can relate to this, because I a few months ago I got my first iPhone and it is the iPhone 5. I remember when I was about to get it how high where my expectations about it, because many people was talking of how good and fast it is. I can definitely see that if there is any quality issue with it, apple and Faxconn should be very concerned about it and try to solve it as soon as possible, even if this means so decrease production for a while. If they do not do it they risk much more. In other words even if they had some losses in the long run, by fixing the quality problems, the benefits are greater.