Monday, September 11, 2017

New Apple iPhone’s key feature is its price tag

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Published: Sept 11, 2017 3:01 p.m. ET

Apple is expected to debut 10th-anniversary iPhone lineup Tuesday, including model reportedly being priced at $1,000


MarketWatch photo illustration/iStockphoto

A redesign iPhone with a price tag of about $1,000 iPhone is expected at Apple’s event Tuesday.

By
MaxA. Cherney
Tech reporter

At Apple Inc.’s AAPL, +1.81% event Tuesday, executives will boast about new iPhone wizardry to much applause, but the most important feature will likely be tucked in at the end and met with little audience response: the price.

The expected 10th-anniversary iPhone roster, including a redesigned device forecast to cost about $1,000, is set to unfold at an event at the company’s new Cupertino, Calif., headquarters, in a theater named for the man who left the iPhone as his legacy. Much like the bold bets the late Steve Jobs made as Apple’s chief executive, the new price threshold will test consumers’ willingness to spend lavishly on high-end electronics while giving Apple a chance to reap huge rewards.

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After months of speculation about what Apple would call the next version, reports over the weekend spoiled much of the surprise and indicated the tech titan has settled on calling the high-end model the iPhone X. The company is also now expected to announce iPhone 8 and iPhone 8S models, according to two Apple-focused blogs, which, based on leaked copies of the new iOS 11 software, published information about Apple’s upcoming announcements. The massive leak just days before Apple’s launch event appeared to confirm some expectations about the new devices, such as the existence of a premium model, as well as to offer insight into exactly what features consumers can expect from the new gadgets.

Stakes are high for Apple, despite its strong balance sheet, because iPhone sales — which make up two-thirds of the company’s revenue — declined in 2016 for the first time, both in units and cash, and demand for a $1,000 smartphone is far from guaranteed. Unlike other tech titans such as Amazon.com Inc. AMZN, +1.25% or Microsoft Inc. MSFT, +1.05% , for Apple overall sales are heavily dependent on a single consumer product, so any valid questions posed about iPhone sales will concern investors.

However, last year’s downturn means there are many potential Apple customers with a 2-year-old iPhone in need of an upgrade, along with the ever-excitable Apple fans who will jump at the chance to own each new model. That combination has some analysts convinced Apple is on the brink of another so-called supercycle, in which case a loftier price would afford Apple a chance at an even bigger financial boost.

Recent surveys suggest there is, in fact, significant pent-up demand for and excitement surrounding the next-generation iPhone, and those factors, combined with the replacement needs among the 700 million–plus iPhone installed base, should power a supercycle for Apple this fall, RBC analyst Amit Daryanani wrote in a recent note to investors, saying 1,138 current iPhone owners had been interviewed.

Read: Apple is about to get a lot more of your money

This supercycle — if it materializes — will be markedly different from Apple’s most recent, which started with the iPhone 6 launch in late 2014. Since 2014, the company has about doubled the smartphone customer base, which may make it more difficult than three years ago to attract first-time iPhone buyers, and Apple’s average selling prices have steadily risen, with expectations that the new premium iPhone will push it past $700 for the first time.




But the RBC survey also found that many existing customers aren’t willing to shell out $1,000, a result that shows the hoped-for revenue boost is not a given. Only 2% of those surveyed would pay $1,000 to $1,200 for a new phone, they said, and at $1,200 or more the phone would only appeal to 1% of RBC’s respondents. Current iPhone owners said an iPhone costing less than $800 was desired, as 78% of current Apple smartphone users surveyed targeted that price.

See also: Buy Amazon because it isn’t pulling an Apple

If iPhone buyers are hoping wireless carriers pick up some of the tab, they will likely be disappointed. BTIG analyst Walter Piecyk wrote this week that high profit margins and low churn rates have meant large telecoms are less willing to fight it out with incentive price wars. Sprint Corp. S, -1.68% tried a promotion in the second quarter of this year — a $360 subsidy for the new Samsung Galaxy Note 8 — and attracted a mere 13,000 customers.

“We believe it’s unlikely that promotions will top last year’s levels and they could even be less generous,” Piecyk wrote in a Sept. 7 note. “The key swing factor could be T-Mobile TMUS, +0.46% as AT&T T, +0.42% and Verizon VZ, +0.41% have largely been ignoring Sprint’s promotions.”

Don’t miss: iPhone production issues reportedly threaten Apple sales rebound

Mike Bailey, director of research at FBB Capital Partners, said he hopes Tuesday’s announcement includes two or three impressive iPhone features which would offer “meaningful benefits” to justify a $1,000 price tag. But that price tag, he said, isn’t going to drive sales. “Priced around $1,000, we would not expect a massive spike in demand for the phone,” he said.

After this weekend’s leaks, investors have a much clearer idea of what to expect with the premium iPhone X — suggesting that Bailey’s hoped-for new features would be included in the premium phone. According to the Apple blogs that broke the news, the iPhone X will include a new type of screen, an improved camera, a facial-recognition system and wireless charging, among other features. The new screen design is the first major overhaul of that component in years and, on the premium model, is expected to eliminate the home button altogether.

Other details that emerged suggested that Apple’s new watch will include 4G wireless connectivity, meaning it won’t need to be tethered to an iPhone to function, as well as a new set of animated emoji, a revised version of the company’s wireless headphones and Apple TV capable of streaming 4K video.

The trove of information from the iOS 11 software originated from public URLs controlled by Apple but likely would have required an Apple staffer leak the material to journalists, according to several media reports.

This year’s gains stock-market notwithstanding, Bailey still thinks Apple shares are a solid play. “At current levels you’re paying pretty little for an impressive balance sheet,” he said. “We like that growth expectations seem pretty modest compared with the last iPhone cycle, it’s a much more manageable growth expectation.”
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Read: How Apple stock tends to trade around its September iPhone event
Investors have been betting on a big upturn for iPhone revenue ahead of Tuesday’s event, sending Apple’s stock to record highs. Apple shares closed down 1.6% at $158.63 on Friday but have risen 37% since the start of the calendar year, more than tripling the benchmark S&P 500’s SPX, +1.08% rise of 9.9%. The Dow Jones Industrial Average DJIA, +1.19% , which counts Apple among its 30 components, has climbed 10.3% in the same span.

Apple has dominated the past 10 years in mobile computing, in no small part the result of Jobs’s wager on the iPhone, which has made Apple the most valuable company in the world. With its 10th anniversary edition, Jobs’s successor as chief executive, Tim Cook, is placing a different sort of bet: that consumers are willing to pony up enough cash to keep Wall Street happy and to buy time for the company to come up with its next big thing.

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