Summary
Genuine smart watch and iPhone innovations unveiled at Apple’s Special Event were still deemed by investors to be iterative, so the shares fell.
Watch steals the show
Surprises were lacking with almost all hardware product adjustments accurately leaked in advance. Watch upgrades stole the show. Apple is pushing deeper into cardiology, elderly and possibly palliative care with impressive watch features that enable users to take their own cardiogram, detect irregular heartbeats, and emergencies due to falls. The wearable medical device market may have a CAGR of 18% between 2015-2023 according to research published by Transparency Market Research in May, yet at, at $10bn, it will remain relatively small by the end of the forecast period. Apple’s Watch innovations may therefore have an eye to the very long-range view in healthcare. With Watch annual revenues running at $6bn, the effort has not been wasted, but it isn’t the main focus in terms of profits.
New iPhones quite dull to the Max
On the surface, iPhone upgrades were perhaps the dullest part, right down to the term ‘Max’ being added to Apple’s new top-end model, to distinguish it from the demoted term iPhone X. In order of price, size, and to an extent capability, from lowest to highest, the new line-up is named iPhone Xr (initially priced at $749) X and XS (both at $999). XS Max will be priced at $1099. The ‘lower end’ Xr is a new category. The other handsets take spots previously held by X, 8 Plus and 8S. Under the skin, Xr does offer hardware innovations. It is one of the most advanced smartphones utilising an LCD display. LCD components are average available more cheaply, so presumably, the Xr handset was less expensive to produce, allowing Apple to pack it with features previously found at the higher end.
Perspicacious pricing
One key takeaway from the tweaked X range is nuanced pricing. On the one hand, top-tier iPhone XS Max is priced lower expected. A $200 bump was widely foreseen from the previous zenith handset, iPhone X which initially retailed at $999. Apple’s highly prized gross profit margin has been sharply in focus ahead of Wednesday’s event. Investors would have seized on any distinct move by the group perceived to be ‘giving away’ proven demand inelasticity at the top end of its handset range. As it stands, yes, the stock is down after arguably the biggest Apple ‘Special Event’ of the year, but pricing is not the reason. In fact, two mid-tier iPhone Xs now occupying the previous top of the range price point ensures the new range is very unlikely to tax the group’s quarterly operating margin trend of between 38%-40%.
Processor power
Deep within their DNA, the new handsets are inarguably packed with genuine feature innovations, enabled by new A12 bionic chips. For instance, users can now edit depth of field effects, a feature not available on any other top end handset. Such introductions, whilst subtle, probably mean iPhones retain their ability to delight the hand, eye and to an extent, the mind of iPhone devotees, ensuring minimal drift to different platforms and continuing attract new users. The group’s apparent missed opportunity was the lack of any material news on its fading computing lines. CEO Tim Cook rounded off the event with by unveiling a new OS X version Mojave, but nothing else. Mooted iOS updates for iPad will have to wait for another time.
On with the show
In short, little that could blow anyone’s socks off was announced at the Steve Jobs Theater on Wednesday, but Apple did no damage to handset revenue prospects. After a brief attempt to retake this week’s highs, Apple shares (NASDAQ:AAPL) closed 1.2% lower. They even returned to the red before CEO Tim Cook and co-presenters completed an entertaining set of demos. Still, with a rise of 30% this year, Apple stock has surpassed a host of high-beta technology leaders. It also notably achieved the $1 trillion-dollar milestone even as Washington’s trade dispute with China intensified. The group faces questions about how it will navigate supply chain and demand risks if the U.S. continues to face off with China. But Wednesday’s product releases keep Apple’s edge in consumer hardware over rivals.
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