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Will Apple's New Launches Boost Flagging iPhone Sales?

Zacks Equity Research
Apple (AAPL) will bank on these three new high-end iPhone models, with special focus on the China market, to boost its revenues.

On Sep 12, Apple, Inc. AAPL unveiled three iPhone models — iPhone Xs, iPhone Xs Max and iPhone Xr — along with fresh versions of Apple Watch at its annual product launch event. However, the company’s new products failed to excite investors, with shares declining 1.3% on Wednesday. A large number of analysts believe that since most of the speculation surrounding the launch turned out to be true, there were not too many surprises for investors.

That said, Apple has been one of the top performers among the tech giants this year, becoming the first publicly traded U.S. company to reach a market cap of $1 trillion. At the same time, one of the growing concerns lately has been slowing growth in iPhone sales. Given this scenario, Apple will definitely bank on these three new high-end iPhone models, with special focus on the China market, to boost its revenues.

Can iPhone Xr Lure More Customers?

The iPhone Xs model has a 5.8 inch “Super Retina” OLED display, while the iPhone Xs Max has a 6.5 inch version of the same display. While iPhone Xs starts at $999, Xs Max has a base price of $1,099. The third model, iPhone Xr, has a relatively low cost, starting at $749, and a 6.1 inch screen.

Apple iPhone Xs launch comes a year after it decided to overhaul the iPhone range. Incidentally, iPhone Xs with a notched up OLED screen, has almost the same features as iPhone X. Understandably, Apple will try and attract attention of customers toward iPhone Xs and iPhone Xs Max, its two high-end models. However, iPhone Xr might prove to be the unexpected winner. And there are ample reasons for that.

iPhone Xs Max with a bigger screen has likely been launched to cater to different strata of Apple customers. iPhone Xs comes with a notched up OLED screen, facial recognition, a dual camera and 3D Touch. However, it has almost the same features as iPhone X. On the other hand, iPhone Xr has an edge-to-edge LCD screen, facial recognition, a single camera for taking portrait-mode and bokeh pictures.

So, for many iPhone users the difference between OLED and LCD and Touch ID won’t be of that importance. Hence they might not be willing to shell out an additional $250. Understandably, this might make customers go for iPhone Xr. Moreover, iPhone Xr costs less than iPhone 8 Plus. So it has every chance of winning over more customers from both iPhone Xs. Apple sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple is known for coming up with surprises during its annual product launch every year. Analysts believe that there weren’t too many this time. Perhaps that’s one reason it failed to excite investors this time around, resulting in its shares to decline.

Does Apple’s China Focus Matter?  

Increasing trade disputes and tariffs have been a lingering issue for not only Apple but other tech giants over the last few months. Tech stocks have been driving markets for a while now but growing global tensions have been taking a toll on tech companies. Moreover, Apple has been one of the best performing tech stocks. Shares of Apple have gained 28.4% year to date.

At the same time, fears of a regulatory clampdown have kept tech and Internet companies under pressure. Six companies are due to testify in front of a Senate panel on Sep 26. Shares of Facebook, Inc. FB, Twitter, Inc. TWTR and Alphabet, Inc. GOOGL declined 2.4%, 3.7% and 1.6%, respectively, on Sep 12.

Moreover, Apple’s growth has primarily been on sales of iPhone. But the growth in iPhone sales too has been slowing. Apple sold only 1% more iPhones than a year ago in its last-reported quarter.

Also, Apple last week said that some of its products might be affected because of tariffs. This saw the company’s shares taking a hit immediately. That said, Apple understands that China is a crucial market. The iPhone models launched on Wednesday have dual-SIM support.

However, all these new iPhone models available worldwide will actually be able to hold only one SIM card. The second SIM support would come through the e-SIM technology, which is a virtual SIM. But for the China and Hong Kong market, Apple would be providing legitimate dual-SIM iPhones, which means the SIM trays will be able to hold two SIM cards.

Now, this definitely was a surprise from Apple, which has so far stayed away from providing iPhones with dual-SIM features. More importantly, Apple perhaps understands the potential that the China market has and wants to make the best use of its resources there.

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