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Apple Unveils 3 New iPhones, Focuses on Healthcare in Watch 4

Zacks Equity Research

Confirming earlier rumors, Apple AAPL unveiled three new iPhones on Sep 12. The company also showed a redesigned Apple Watch that demonstrated Apple’s focus on providing healthcare services to its customers.

The iPhone Xs, priced at $999 (for 64 GB version), is powered by a faster A12 processor and updated cameras. The device has a screen size of 5.8 inches.

The high-end iPhone Xs Max starts at $1,099 (for 64 GB version) and features a 6.5-inch OLED screen. The device has a 512 GB storage option.

Pre-order for both iPhone Xs and iPhone Xs Max will begin from Sep 14.

The iPhone Xr, a cheaper version starting at $749 with an LCD screen size of 6.1inches, features the key aspects — facial recognition and an edge-to-edge display — of the inaugural iPhone X. As rumored, Apple used aluminum instead of stainless steel for the edges.

iPhone Xr comes in six new finishes — white, black, blue, yellow, coral and red. Pre-orders will begin from Oct 19 and the device will be available from Oct 26 in more than 50 countries including China and India.

Apple Inc. Price and Consensus

Apple Inc. Price and Consensus | Apple Inc. Quote


Apple’s Price Strategy to Boost Top-Line Growth

Apple’s strategy, apparently, is to steadily increase ASP by offering a number of devices at different price points.

The devices are distinguishable enough to give people buying higher-end version good reasons to do so. On the other hand, the lower-priced device, which does not flaunt premium features but promises an Apple experience, becomes affordable to those willing to compromise on features.

Moreover, the company just stopped selling older models iPhone SE and iPhone 6s. This means customers now do not have the option to buy an iPhone with a headphone jack. So, users wanting to upgrade now have to pick either older models, which will be much faster post iOS 12 update (to be available from Sep 17), or from the new trio of iPhones.

This strategy eventually increases the total number of active devices (including older versions) and helps Apple sell more accessories and services. Per Bloomberg, Apple has an installed base of 1.3 billion devices.

Moreover, steadily increasing ASP will help drive top-line growth, irrespective of volumes. For instance, in the last reported quarter, the company sold 41.3 million iPhones, a few hundred more than it did in the year-ago quarter. However, segment revenues were 20% higher, primarily due to 19.5% boost in iPhone ASP, which was priced $724 in the quarter.

Apple’s fortunes are tied to iPhone, which is by far its biggest revenue contributor. The device accounted for 56.1% of net sales in the last reported quarter, when the company sold 41.3 million units of iPhones.

However, Apple continues to lose smartphone market share. Huawei recently toppled it to become the #2 smartphone seller globally.

The three new devices promise strong growth prospect for the company in the upcoming holiday season. Unflinching loyalty for iPhone and higher ASP are key catalysts. Notably, ASP of the three new iPhones is almost $924, much better than $724 in the last reported quarter.

Apple Watch Reflects Growing Healthcare Focus

Apple Watch 4 has larger curved-edge screens. While the smaller version has 32% larger display the bigger one has 35% bigger display. The device is powered by a faster dual-core processor called the S4.

The device has new health sensors and apps such as electrocardiograms (ECG) that has the U.S. Food and Drug Administration (FDA) approval. According to Bloomberg, the ECG feature will be available in the later part of this year.

Through the ECG capability, the device can sense irregular heart rate that can increase the risk of stroke, heart failure and other heart-related complications. Moreover, Apple Watch can detect fall as well as active workouts. Notably, if the user doesn’t move for one minute after a fall, the device delivers an alert and call emergency services.

Per TechCrunch, the 40mm Apple Watch starts at $399, while the LTE version starts at $499.

The redesign is expected to boost Apple’s dominant position in the wearables market. Per market research firm IDC, the company has beaten the likes of Xiaomi, Fitbit FIT and Garmin GRMN to maintain its lead in this rapidly growing market in the second quarter.

Apple’s market share of 17%, up 400 basis points (bps) on a year-over-year basis was much better than Xiaomi’s 15.1%, Fitbit’s 9.5% and Garmin’s 5.3%. While Xiaomi gained 180 bps in market share, Garmin and Fitbit lost 10 bps and 330 bps, respectively.

Apple Watch grew 38.4% year over year and the company shipped 4.7 million units. Apple Watch is a part of Apple’s Other Products (7% of sales) group that also includes Apple TV, Beats products, iPod, and Apple-branded and third-party accessories.

Total revenues from wearables, which include Apple Watch, Beats and AirPods, increased more than 60% year over year in the last reported quarter. Apple Watch grew in the mid-40% range. We expect the upgraded Watch 4 to drive top-line growth much faster in the upcoming holiday season quarter.

Zacks Rank & Key Pick

Currently, Apple sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Microsoft MSFT is a stock worth considering in the broader computer & technology sector, as it flaunts the same Zacks Rank as of Apple.

Long-term earnings growth rate for Microsoft is currently pegged at 12.3%.

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