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Abu Dhabi, UAESaturday 15 December 2018

Wall Street's reaction to Apple's new iPhone line-up

The latest iPhones are largely in line with analyst expectations

Apple iPhone XS Max smartphones are displayed during an event at the Steve Jobs Theater in Cupertino, California, on Sept. 12, 2018. Apple debuted a trio of phones that cater to a broader audience. Bloomberg
Apple iPhone XS Max smartphones are displayed during an event at the Steve Jobs Theater in Cupertino, California, on Sept. 12, 2018. Apple debuted a trio of phones that cater to a broader audience. Bloomberg

Apple’s introduction of its latest iPhones on Wednesday was largely in line with analyst expectations.

The new product line-up, which offers higher average selling prices and dual-sim card support, may fuel stronger sales and profitability next year, experts said. Shares of Apple were little changed in post-market trading Wednesday.

Some of Apple’s Asian suppliers fell following the event. Japan’s Alps Electric closed 4.8 per cent lower, TDK slipped 3.9 per cent and Hon Hai Precision Industry dropped 1.3 per cent.

Here’s what analysts are saying about the product launch:

“IPhone ASPs [average selling prices] and larger storage SKUs [units] across the portfolio surprised to the upside, as did the inclusion of dual-SIM capabilities,” Katy Huberty, Morgan Stanley, said.

The availability date for the iPhone Xr, set for October 26, was a bit later than expected, but it won’t impact unit demand, “particularly given most early adopters will skew to the Xs Max”.

Ms Huberty recommends buying shares on “any post-event weakness”. She raised Apple’s target price by $2 to $247.

The newest iPhones will result in no major change in sales volumes in the mature smartphone market, SMBC Nikko analysts wrote in a report following Apple’s presentation.

While high-end smartphone sales growth is unlikely, the lower-priced iPhone Xr may become “the big seller of the three”, despite the later release date.

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“Apple is once again redefining the high end of the smartphone market”, Nomura Instinet analysts wrote in a report, noting that the iPhone Xs and Max may help boost 2019’s average selling price to $800 to $830, way above the consensus of $757. However, the Xr ASP of $750 is a “modest offset”.

New launches are “consistent with flat or even down units in FY19”, the analysts said. The firm expects the replacement cycle to be delayed following Apple’s recent efforts to extend the life of old devices.

The new iPhone line-up offers more choices that should fuel higher unit sales and ASP, resulting in increased revenue and earnings per share (EPS) for Apple in fiscal 2019 and 2020.

Previous survey results showed that many iPhone owners who didn’t upgrade to the iPhone X chose not to because it was too expensive or too small. Now these users have options, with the iPhone Xs Max having a larger screen and the iPhone Xr costing less.

“More choices will drive more users who are on an ageing installed base of iPhones to move to the next gen form factor” in fiscal 2019 and 2020.

Apple’s focus “appears to be shifting away from product replacement cycles and more towards profitability and Services narrative, which is a positive in a mature smartphone market”, said Amit Daryanani, an analyst at RBC.

The company “is positioned to sustain mid-single digit sales and low- to mid-teens EPS growth in a flattish iPhone volume growth environment”.

“We are positive on Apple Watch Series 4 and its positioning as a life-saving healthcare product vs a fitness tracker, and could see 20-25 per cent ASP increases,” Mr Daryanani said.

“While the Apple event went largely as expected, the new iPhone line-up should provide upside to both iPhone units and ASPs over the next year,” said Gene Muster, analyst at Loup Ventures.

“Apple, once again, has shown their mastery of pricing tiers, which will extract more revenue per customer.”

The iPhone line-up now ranges from $449 to $1,449 for an unweighted average of $765. That compares with last year’s range of $349 to $1,099 with an unweighted average of $636.