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Apple's Next Generation Products Leaves Shares Unchanged

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Apple (AAPL - Free Report) unveiled its new line-up of products along with some game-changing subscription services on Tuesday (9/10). AAPL investors had mixed feeling about the aggressively priced subscription services and lackluster product discloser, with the share price up effectively flat since the product event.

I discussed the implication of Apple’s new subscription-based services in my article Apple's Aggressive Entrance Into The Subscription Market. In this piece, I will look at how the companies token product, the iPhone, is expected to perform moving forward and what this means for AAPL.

The iPhone 11

The new line up of iPhones isn’t going to have consumers lining up at the doors. The iPhone 11 is a new generation for Apple, but the changes were so marginal that analysts expect to continue to see sales declines in this segment. This was expected by investors who are anticipating a resurgence of growth when the 5G phones are released next year.

The new generation iPhone put a significant amount of emphasis on the new camera, which they hoped would be the primary catalysts for an upgrade. The dual lenses on the iPhone 11 and the triple camera on the iPhone 11 Pro could draw a crowd from Instagram “photographer”, but for the average Joe, there is no functional reason to upgrade from the iPhone X.  Other quintessential changes include faster processor, longer battery life, and better water resistance. There was no major design changes.

The smartphone industry has been declining for the last few years. Apple shipped its greatest number of iPhone units in 2015 and has been in decline since. The changes made to new iPhones are becoming increasingly marginal, and the need for consumers to upgrade is weakening.

5G Bet

5G is expected to propel the smartphone industry back into growth, and Apple is putting a big bet on this new technology.

We have been hearing about 5G for some time now, but what is 5G and will consumers be lining up to buy 5G smartphones? 5G will give users faster upload & download speeds, lower latency, meaning more responsive smartphones, and the ability to connect more devices. Consumers will be rushing to buy this technology because that’s this new generation’s nature. Millennials ‘need’ the most up-to-date technology and 5G smartphones are going to be a must-have technology.

Apple is waiting for its 5G smartphone to pull out all the stops. The company is in the process of acquiring Intel’s (INTC - Free Report) smartphone-modem business for $1 billion following its purchase of Dialog Semiconductor for its battery-management chips. Apple is taking complete control of the development and manufacturing of its next generation of phones. The 5G iPhone is expected to be released next fall when the cellular infrastructure is more established.

Other Bets

Apple is attempting to diversify its revenue drivers with a significant push from its accessories like the AirPods and Apple Watch. The new streaming and gaming subscription services that Apple’s released are a long term play that the company hopes will be significant reoccurring profit drivers in the future.

The company is attempting to hedge itself away from the cyclical smartphone business and drive an eclectic portfolio.

Take Away

Apple’s uninspiring next generation product release isn’t scaring investors away from this excessively cash-rich firm. AAPL is up over 37% so far this year, doubling the returns of the broader market. This stock once again passed the $1 trillion market cap level being one of two companies in the world to pass this benchmark.

This company’s financial health, sensible multiples, long term growth outlook, and a 1.4% dividend make it one of the safest bet in the US stock markets. AAPL is almost as safe as government treasuries with the risk of default being close to 0%. AAPL is still susceptible to market volatility with a beta over 1. I don’t see a significant amount of stock price growth in the near future, but it is not a bad long term play.

 

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