Apple Touts Its Largest Screens, Cheaper Models in iPhone Revamp
(Bloomberg) -- Apple Inc. debuted a trio of iPhones on Wednesday, holding fast to what’s now a familiar strategy: getting new buyers to pay higher prices and gobble up more services, like storage and entertainment, as smartphone market growth slows.
The iPhone Xs, starting at $999, succeeds last year’s flagship model with a faster A12 processor and updated cameras. The iPhone Xs Max is a higher-end version with a 6.5-inch OLED screen, making it one of the biggest on the market -- and one of the most-expensive at $1,099 and up. There are 512 GB storage options for the first time.
The third model, called the Xr, is Apple’s biggest hardware bet of 2018. It retains the key advances of the first iPhone X -- facial recognition and an edge-to-edge display -- but is cheaper while being noticeably larger at 6.1 inches. The price starts at $749, roughly in line with most analysts’ expectations. Apple used older LCD screen technology and aluminum, rather than stainless steel, edges.
"We want to reach as many customers as we can with this incredible technology," Apple marketing chief Phil Schiller said Wednesday during an event at Apple’s Cupertino, California, headquarters. The shares slipped 1.2 percent to $221.07 at the close in New York.
When Apple introduced the iPhone X last year at a starting price of $999, some analysts were skeptical that people would pay so much. But it has been the company’s best-selling smartphone. Now Apple is making the core features available on a range of devices that appeal to different budgets.
The variety of models show how the company is adjusting its strategy. Rather than luring millions of new iPhone users, Apple’s goal these days is to steadily raise average prices, while expanding the total number of active devices to support sales of accessories and digital services like iCloud storage, streaming music and video.
Wall Street has embraced Apple’s evolution from a consumer hardware company into a more-diversified technology giant with an installed base of 1.3 billion devices supporting a growing roster of digital services. The stock has jumped more than 30 percent this year, making Apple the first public company worth $1 trillion. On Tuesday, UBS raised its price target to $250, arguing a growing stream of recurring revenue from services and other offerings deserves a higher valuation than the more-cyclical hardware business.
The iPhone is still Apple’s most-important product, generating about two-thirds of revenue. While global smartphone market growth has stalled, Apple has kept revenue rising by lifting average selling prices. The three new iPhones have an average starting price of $949. The iPhone ASP was $724 in the most-recent quarter.
The $749 starting price of the iPhone Xr may pressure Apple earnings in the short-term, but if it sells in large volumes that will create a bigger customer base for the company’s digital services.
The iPhone Xr will be the main driver of Apple volume, with 100 million units sold in the next 12 months, according to Neil Shah, an analyst at Counterpoint Technology Market Research. "It’s a great upgrade product in the traditional iPhone price range for the two year-old iPhone or Android users," he added on Twitter, predicting a "runaway hit."
Goldman Sachs analyst Rod Hall expected the Xr to cost $849 for the base 64 GB version. A scenario in which it priced at $699 and the 256 GB version cost $849 could have dented fiscal 2019 earnings per share by 8 percent, the analyst estimated recently. (The 256 GB model ended up costing $899).
©2018 Bloomberg L.P.