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Apple Roundup: iPhones, Watch, China

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At Apple’s (AAPL - Free Report) annual product launch event, the company introduced three new phones at different price points and slightly different functionality as well as the fourth version of its successful Watch that is morphing into something of a medical device. The company appears focused on these categories because they can help it sell more services, a key focus area for the future. These and China-related tensions made the top stories last week-   

iPhone

Apple may not be selling a whole lot of new features, but it has found a way to extract more from its loyalists. This alone will help it generate higher profits even as the mature smartphone markets of North America and Europe slow to a crawl. In the last quarter for instance, the iPhone ASP was $724, up around 20% year over year.

With this launch, the high end of its range has gone higher while the low end option at $749 is only low end for an iPhone. This option, now called XR, with additional color options, AR tools, Face ID, fast processor and an advanced LCD screen is set to launch on Oct 26. It is likely to be the most popular and designed to rope as many new users as possible into the Apple ecosystem while also getting some to upgrade.

Some users have paid for so many apps on the app store that it’s not worthwhile moving elsewhere. Also, it isn’t just the iPhone Special Edition (SE) but also the iPhone 6S that’s been discontinued.

The $1000 XS and $1100 XS Max (both are starting prices and could go much higher) are due out on Sep 21. They are for the hardcore fans.

Advanced AR tools in the iOS ecosystem have opened the door to new use cases, such as home furnishing apps allowing users to place potential purchases in their apartments virtually to check the look and fit. The larger displays can make this kind of thing even easier and could add an element of differentiation from the Android ecosystem.  Other common factors between the models are the absence of the home button and Face ID. This chart aggregated by Yahoo Finance explains the specs rather well-

Model

iPhone XS

iPhone XS Max

iPhone XR

Screen Size

5.8 inch display

6.5 inch display

6.1 inch display

Processor

A12 chip

A12 chip

A12 chip

Resolution

2436*1125

2688*1242

1792*828

RAM

4GB

4GB

3GB

Storage

64GB, 256GB, 512GB

64GB, 256GB, 512GB

64GB, 128GB, 256GB

Colors

space gray, silver, gold

space gray, silver, gold

Black, white, red, yellow, coral, blue

 

Here are some of the top comments on the new lineup-

Apple CEO Tim Cook: “iPhone XR will allow us to deliver the future of the smartphone to even more people."

Patrick Moorhead of Moor Insights: "I am going to go out on a limb and say the XR is going to become Apple's top-selling iPhone." "It is a smart strategy to keep more people in the Apple ecosystem and get even more people to come into it."

Ben Wood, an analyst with CCS Insight: "The belated introduction of a larger screen in the iPhone 6 Plus resulted in a surge in demand from Apple fans," "The iPhone XS Max fulfills the widespread expectation of a larger display on an iPhone X and will prompt a similar flood of upgrades like the one in 2014."

Geoff Blaber of CCS Insight has "little doubt that it [the iPhone XS] will be a huge success" and "the fact that Apple has sold almost 2 billion iOS devices to date is testament to the success of the iPhone recipe since 2007."

Forrester analyst Thomas Husson felt that although the main feature on the new iPhone XS Max was a larger screen, "it's still good enough to maintain their premium positioning."

Ru Bhikha of uSwitch said that Apple had announced "a batch of solid improvements aimed at refining user experience, such as longer battery life and cameras that can cope with low light."

Gene Munster, a longtime Apple bull: "While the Apple event went largely as expected, the new iPhone lineup should provide upside" for unit sales and average selling prices and showed the company’s "mastery of pricing tiers, which will extract more revenue per customer." He also believes that customers wont mind the price hike because it will simply add $10 to their monthly installments and most can afford that.

Watch

Apple Watch Series 4 kicked off Apple’s grand event, complete with onstage endorsement by American Heart Association cardiologist Ivor Benjamin.

As far as features go, this is Apple’s first wristband with an edge-to-edge display, enabling 30% increase in screen size. Battery life remains at 18 hours, so overnight charging will be necessary.

Apple’s strategy for other use cases isn’t clear as of now. i.e. whether it will have a separate band for monitoring sleep disorders, or pack that facility into the next version of the device, isn’t clear. But for now, it’s all about that heart.

And that means electrodes and sensors transforming the Watch into an FDA-cleared ECG machine that can reproduce an electrocardiogram as a PDF file to be shared with a doctor if required. The ability to detect atrial fibrillation (irregular heart beat) ahead of a stroke, especially in people that otherwise don’t display symptoms could be a big deal.

It’s also equipped with a built-in accelerometer and gyroscope that tracks the wrist trajectory and impact acceleration to determine if the wearer has taken a fall. Furthermore, upon detecting a fall, it flashes an alert to the user that says “It looks like you’ve taken a hard fall.” The user can deactivate it, but if there’s no movement within 60 seconds, it can call emergency services and send a message along with location to designated emergency contacts. However, since not all models support cellular calls, the device needs to be close to a paired iPhone or Wi-Fi service at the time.

Note that an FDA clearance isn’t the same as an FDA approval, which is a more rigorous process. The FDA has also said that the device isn’t intended to provide a notification of every episode of irregular heart rhythm and that the ECG data displayed on the watch is for informational purposes only and needs to be interpreted by a healthcare professional only. Still Apple’s testing process included the monitoring of 2,500 users and results have been largely accurate.

Doctors are divided on how good this is. Some point to the benefits of knowing your condition before it gets too bad, so you can take action at the right time while others feel that it can lead to unnecessary hospital visits, application of medication when not required and suffering side effects, etc.

But a proper FDA vetting process may have clarified whether the watch’s benefits in detecting asymptomatic cases outweigh the risk of over treatment. At any rate, it doesn’t look like the data is usable by doctors yet, except for the purposes of recommending a clinical test.

Some are also saying the features aren’t really necessary because they would mostly be worn by younger people with much lower risk of heart disease. But many Apple users are in their forties, when problems often start. Moreover, as Patrick Moorhead of Moor Insights says, "I can see kids buying one for their parents and grandparents."

Gartner analyst Tuong Nguyen thinks this alone could turn smartwatches "from something people buy for prestige into something they buy for more practical reasons." Even better, it could lead some health insurance plans to subsidize the cost of an Apple Watch that costs at least $400 and still requires a companion iPhone, which can now cost more than $1,000.

China Tensions

Apple is one of the companies that will be impacted by the escalating trade war with China, according to its letter to the U.S. Trade Representative Robert Lighthizer.

The products that will be impacted according to Apple are its Watch, HomePod, AirPods, Mac Mini, Apple Pencil, Magic Mouse and Trackpad and various leather covers and cases.

However, investors can take solace from the fact that its all-important iPhone won’t be impacted because of assurances from the President that these devices won’t be subject to tariff even if assembled in China.  

The letter followed the fresh tariffs of 10% on an additional $200 billion worth of Chinese goods.

This is not the only impact on Apple, which along with other foreign brands is dropping lower on customer wish lists because of competition, relevance and appeal of Chinese brands like Alipay and Meituan, according to an annual survey by consultancy firm Prophet.

The firm says that Chinese brands now take 30 of the most popular 50 brands in China. 13,000 Chinse people ranked the companies on the basis of innovation, practicality, customer-focus and inspirational. In Apple’s case, the primary competition comes from Xiaomi and Huawei.

Apple generated a fifth of its revenue from the Greater China region, so it stands to be significantly impacted by the trade war, particularly since the government can easily ban its products and services.

Recommendation

Apple shares carry a Zacks Rank #1.

Other technology stocks with the same rank are Diode Inc. (DIOD - Free Report) , Avaya Holdings , ManTech International Corp. and Semtech Corp. (SMTC - Free Report) . For recommendations in other sectors see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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