Apple Watch Series 8 'a bit light' on updates, analyst says
Samik Chatterjee, JP Morgan Head Telecom & Networking Equipment and IT Hardware Analyst, joins Yahoo Finance Live to break down Apple's latest product launches and whether they will convince buyers to upgrade their devices.
Video Transcript
- Let's keep our conversation going on the annual Apple event. Our next guest says investors received a positive surprise with Apple maintaining iPhone prices. For more, let's bring in Samik Chatterjee. He is JP Morgan head of telecom networking equipment IT hardware analyst. Samik, it's good to talk to you. I think your exact words in your note was a modest positive when we're talking about this event. Let's talk about the positive side of things first. Was it really all about the iPhone? Or is the Apple Watch the one to watch?
SAMIK CHATTERJEE: No. I mean, thanks for having me on the show. I was still focused on the iPhone. Obviously, the implications of that in terms of volumes and on the financials are much greater for an investor. Even though it was modest updates to the portfolio on the iPhone side, I would highlight you still sort of got a positive in terms of the differentiation that you saw with the Pro models.
Heading into the event, it was just considered to be sort of a new application process. So clearly, there's a user experience differentiation that's been created that probably drives mix higher for the portfolio. As an iPhone buyer, you would also want to focus on camera. A lot of focus on camera in the event. And once consumers get their hands on these devices, if there's a tangible difference in camera performance, it does lead to a lot of upgrades as well.
So I would still focus on the iPhone updates as well as when you look at it in combination with pricing remaining sort of flat and being maintained, it's a positive for the overall financials. And volume expectations have definitely gone up after yesterday's announcement. On the Apple Watch to your question, modest positives. I think the Series 8 probably was a bit light in terms of updates then what investors and consumers were hoping for. But clearly, the Ultra is going into the premium segment where there's a significant revenue opportunity.
- Those positives you highlighted on the iPhone specifically, the price necessarily didn't go up. And you said there were some camera improvements. But of course, you've still got a lot of cost conscious customers who are saying, are these upgrades enough for me to really switch over my phone? To what extent do you think this propels that cycle?
SAMIK CHATTERJEE: Yeah. A couple of points there. We've done surveys in the past. And you have to recognize that when you look at Apple's loyal customer base, and you would have heard about their loyal customer base a lot of times, about 60-65% of the replacement demand actually comes from people who bought a phone in the last couple of years. And so you can see a lot of consumers are more habitual upgraders. They're upgraders because they use their smartphones a lot and they want to upgrade to the newest features.
And when we look at, again, the Pro models with the improved compute capabilities on the application processor as well as the differentiation on the user experience, that will probably drive a lot of these consumers that have still bought a phone in the last two years to still come in because either their contract's up or they're habitual one year upgraders. They upgrade every year. They'll still coming. When you look at the remaining 30-40%, obviously, there's a now broader portfolio in terms of price points, even though the lowest end device has been taken out. But you have a lot of installment plans.
You have an iPhone upgrade program that Apple runs and a lot of ways to make that purchase more easier, more feasible for customers. And hence when you look at the combination of features, that's what really drives consumers to upgrade, just the combination of features, better camera, better processors, 5G if you don't have a 5G device yet. And we think that will push a lot of people on the fence to come in and upgrade their phones.
- One of the other features getting some notice here is this emergency SOS service that we saw introduced essentially allowing users to connect to satellites when they're in a dead zone and they can't necessarily connect to what we know as cell towers. It's going to be offered for free for two years. But I wonder how sticky that's going to make Apple. I mean, how viable do you think this is going to be?
SAMIK CHATTERJEE: Yeah. Sure. And I think one thing your previous speaker did speak about health and fitness. I would say across yesterday's product announcement, I would characterize it as health and safety was the common theme across all the products. You could clearly see Apple taking another step towards ensuring health and safety. And that opens up a newer demographic that is very focused on safety, particularly if you look at certain age ranges. That opens up that incremental market opportunity with your devices.
Now, is safety going to be alone a big enough driver where just because of that feature you're going to upgrade your phone or switch to a Apple device? Again, the likelihood of one feature alone convincing a consumer remains very low. We've generally seen in our work that consumer upgrades are more driven by a collection of features.
And when you think about what Apple brings with their ecosystem, there's a lot in there, not only sort of the convenience of using the hardware, but also the services you can consume on them, including now safety being core to the devices. The combination itself is compelling. We don't really believe one single feature is what the consumer looks at. We've seen the single largest big camera. But again, one single feature is never really a reason that a consumer upgrades.
- Yeah. It's a collection of those features that have kept the iPhone going. Samik Chatterjee, JP Morgan head telecom networking equipment IT hardware analyst. Appreciate you stopping by today.
