The eagerly awaited new iPhone launch is almost here and consumers and investors alike are waiting to see the changes to the new iPhone. The launch is going to take place on September 12 at the spanking new, super luxurious Cupertino, California headquarters in the theater named after the man himself – the late Steve Jobs. This is going to be the 10th anniversary of the iPhone and people are expecting big things from Apple.
However, news is out that the new iPhone will cost around $1000, which is not making people happy. If this is true, then this is going to be a test to see whether people will be willing to spend so much on high-end electronics.
Despite having a strong balance sheet and the fact that Apple’s third quarter earnings for 2017 were at record highs at $8.72 billion ($1.67/share) vis-à-vis $7.8 billion ($1.57/share) a year earlier, and stocks rose 5.5%, people – investors – are worried. The worry is this: for the first time since the iPhone was launched, sales went down in 2016 – both in units as well as cash. The iPhone makes up almost two-thirds of the company’s revenue. If the sales of a company’s prime source of revenue are seen as affected, then the market worries. And now, the launch of an even more expensive phone touching the $1000 mark has analysts even more divided. Another cause for concern was that there were rumors that the new iPhone’s launch was delayed because of production issues.
In a recently done survey of 1,138 iPhone users, conducted by RBC Capital Markets analyst Amit Daryanani, 78% said that they wanted the new phone to be less than $800. Only 2% of the people surveyed said that they would be willing to pay $1000 for a new iPhone.
Wireless carriers are not willing to offer promotions on high end smart phones. High profit margins and low attrition rates mean there isn’t much left to offer customers. For example, Sprint Corp., tried a promo earlier this year for the new Samsung Galaxy Note 8, and the company barely had 13,000 takers.
According to Barclay’s analyst Mark Moskowitz, Apple will probably sell approximately 40 million phones after the new iPhone launch. However, sales could be pushed up by another 24 million if the company also added a few freebies like a 1 year free subscription to iCloud and Apple Music.
The other side of the story is the great optimism with which the new iPhone launch is being anticipated. Apple’s earnings for the last quarter beat all analyst forecasts, which, for them, implied there was no manufacturing difficulty – no matter what bloggers and nay-sayers were saying. Additionally, the not-so-good sales in 2016 would mean that there were a huge number of customers with 2 year old iPhones in need of a new upgraded model. Other surveys conducted also suggest that there is a lot pent up excitement about upgrading to a new model. And let’s not forget the legions of die-hard Apple cultists who look forward to every single Apple product release. These combinations are leading the optimistic analysts to believe that another super-cycle is in the offing for the company.
Whatever the debate be on the world’s most loved and most valuable company, the hype around the upcoming launch has shot Apple stocks to new record highs. Apple’s stocks have risen 37% since the beginning of the year, more than 3 times the S&P 500, which has only risen 9.9%. The Dow Jones (Apple is also a component of the Dow) rose only 10.3%.