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Apple Roundup: Products, Security Issues, Analyst Opinion & Trillion-Dollar Valuation

Sejuti Banerjea

Apple’s AAPL new products, Goldman’s reservations about the stock, iPhone security issues and its trillion-dollar valuation are the highlights of this roundup. Here are the details-

Product Update

iPhones: There were three iPhones as rumored at this year’s launch event: the iPhone 11 Pro and Pro Max replacing its iPhone XS and iPhone XS Max flagships and the iPhone 11 replacing the iPhone XR.

Displays and cameras are what sell phones, they say. And better cameras were the salient features in all three, although things like battery life and water resistance were also much improved. And then there was a new processor thrown in. Reviews indicate that the higher-end phones also slightly outdid the Pixel in low-light environments. Face ID will now let you unlock the iPhone even if it’s lying flat on the table.

A lot of people didn’t like the camera bump at the back (the Pro models have three cameras for wide-angle photography, higher-resolution pictures, better video recording, AI-powered auto-correcting, live video editing and more; iPhone 11 got its second camera with improved portrait mode and optical zoom). Some also commented on the fact that the iPhone is getting heavier with each new iteration.

These models aren’t likely to help Apple regain share in China because vivo on the lower end and Huawei on the higher end are delivering more or less the same things plus 5G, which Apple has put off until next year. The reactions coming out of Asia was termed tepid by the media, but the lines look long enough if the pictures are to be believed.

Apple TV+: There’s much ado about Apple’s new streaming-video service given board member and Disney CEO Bob Iger’s stepping down from Apple’s board after a long association.

The move was unavoidable, since Apple’s service is set to launch on Nov 1 in 100 countries, while Disney’s will launch just a few days later in a really crowded marketplace that also includes Netflix, Hulu, Amazon’s Prime Video and soon, HBO Max (launching in the spring of 2020).

On the face of it, Apple’s service looks underpriced at $4.99 a month (Disney will be charging $7 while the others are more expensive). And Apple is also offering a year’s free subscription if you buy its iPhone, Macbook, iPad or iPod Touch.

But the service is still mostly focused on selling subscriptions like HBO and Showtime, with Apple committing a mere $2 billion for Hollywood talent and popular shows. Compare that with Netflix, which reportedly invested $12 billion last year and plans another $15 billion this year for original content.

So Apple’s service most likely is a little perk or incentive to buy its hardware in an attempt to boost slowing sales. It may also be a way to rope in users as the number of live streaming companies continues to grow. But subscriber numbers won’t be the real thing until next year, when they will have to pay. When Apple has a comparable portfolio, it can always raise the price and think about making a profit.

Watch: At an event at Apple’s Cupertino, California headquarters, Apple launched its new Series 5 watches. This year’s iteration has relatively few changes with the starting price at $399, same as last year. The always-on screen now has technology to reduce power consumption. The Series 5 watches are also getting new ceramic and titanium cases. Apple also announced that the Series 3 watches from 2017 will now be available at $199, likely increasing competition with Fitbit FIT

Arcade: Starting September 19 with iOS 13, people will be able to play unlimited games for $4.99 a month. The service that allowed users to play free games if they watched a few ads now has a price tag. But Apple is offering a one-month free trial to games that aren’t available on any other mobile platform or subscription service. With Family Sharing, up to six people can play on a single membership. Whether Apple can be successful at this isn’t clear yet but it’s certainly spending millions of dollars to procure the right kind of content and it does have a lot of captive customers it just might be able to milk.  

iPad: Apple launched a new iPad, bumping up the screen size from 9.7 inches to 10.2 inches and charging $329 for the device. It has the same A10 Fusion chip as last year’s model and no Face ID. It’s made with recycled aluminum.

Walgreen Arrangement with Apple Card

Walgreen WBA customers using Apple Pay on eligible purchases, including prescription bought in Walgreens and Duane Reade stores and those made on the Walgreens app and its website, will be receive 3% cash back. Walgreen stores carrying Apple accessories like lightning cables, EarPods and iPhone cases will be expanded to 2,600.

Goldman Analyst Caution

Goldman Sachs GS analyst Rod Hall has raised a red flag about the way Apple is likely to account for its Apple TV+ service. He said that Apple was likely to show it as a discounted bundle of a free service paired with a hardware purchase, while keeping it out of the services segment. This would lower iPhone margins, while making its services business appear to be doing better than it was. Apple responded by saying that it does "not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results."

This is a rare public showdown between the companies that have been business partners for long, with Goldman advising Apple on its debt issues and partnering with it to launch Apple Card. Neither company made further public comment.

iPhone Security

Alphabet GOOGL-owned Google researchers recently published a report about Chinese hacking of iPhones to track its minority Uighur community. Apple said that while the security lapse had happened, it affected just 12 sites carrying content related to the Uighur community. Moreover, it was fixed in February, within 10 days of its being notified by Google. The report made it seem that the attacks were more broad-based and that they had carried on for about two years. But according to Apple, it had happened over a 2-month period. Google responded by saying that it stood by its research and would continue to work with Apple and others on the issue of security.

Trillion-dollar Valuation

Apple regained its trillion dollar valuation that it touched for the first time last November. The company has gained 39.4% year to date, roughly double the growth in the S&P 500. The fact that analysts have remained concerned about its manufacturing issues in China (related to the trade war) as well as the seemingly constant decline in iPhone unit sales (that Apple doesn’t report any longer), have not daunted investors a bit. Apple has gone on hyping its services business and adding to its lineup and here are the results.

 

Recommendation

Apple shares carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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