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How will Apple's (NASDAQ:AAPL) stock price react to its new product announcements on Tuesday, September 12? It will likely drop, but these latest product releases will continue asserting Apple's dominance. In particular, I expect Apple to lead with its controversial pricing strategy to increase revenue in a maturing iPhone market.
[Note: This article is written in anticipation of the September 12th event to give investors a sense of what is expected. The actual announcements may be different.]
Historically, Apple's stock price drops after new iPhone releases. Approximately 75% of the time, the stock price declines after a new iPhone announcement (build.com). In the last decade, it has dropped an even higher percentage. Generally, most investors know the new product rumors and trade the stock in anticipation, so the event can only disappoint. However, with Apple's stock price down by approximately 5% this past week, it's possible that most investors have already caught up with this phenomenon. However, the price decline was mainly attributed to several China stories.
This year's event looks predictable, with no rumors of potential surprise product announcements. With this new iPhone release, Apple's primary objective is to continue its strategy to move customers to higher price-point models, increasing its overall average selling price and margins.
Apple initiated this pricing strategy in 2019 when introducing the first iPhone Pro. This strategy is to make the Pro versions more attractive, getting customers to upgrade to those more expensive versions. Since then, iPhone revenue has increased or stabilized, even though unit sales generally stagnated. The iPhone Pro versions have the newest chipset, improved cameras, and additional features. This will be the case this year, too.
Wedbush analyst Dan Ives predicts that this pricing strategy will spark a 20% increase in Apple's stock (Apple stock is poised to jump 20% as its iPhone 15 will drive a 'mini super cycle,' Wedbush says). His rationale is that while base model prices will remain unchanged, the estimated increase of $100 is warranted for the new iPhone 15 Pro and Pro Max models, given the improved chip, battery, and photo technologies. He also expects continued discounts and promotions from U.S. carriers, and points out that 25% of the 1.2 billion iPhone installed base hasn't upgraded for four years. Let's look at this thesis, but first, I'll summarize what is expected in Apple's announcements.
What Apple Is Expected To Announce
Apple's new iPhone event, Tuesday, September 12, is titled "Wanderlust," but that doesn't shed much light on new products. As usual, new iPhones are expected to be the primary focus, and we can expect the following new product announcements based on rumors and leaks.
iPhone 15 and iPhone 15 Plus
The rumors primarily center around minor upgrades for the standard iPhone models: the iPhone 15 and the iPhone 15 Plus. Based on history, they should incorporate the A16 chipset used in the iPhone 14 Pro versions. There have been rumors of a slimmer bezel, adding the dynamic island, and a new rear camera with a 48-megapixel wide-angle camera upgrade. The physical connector from the lightning port will also change to a more standard USB-C connector, although that may not be popular. Location features may be improved on all of the new iPhones with a U2 ultra-wideband chip, the first update to the U1 since its launch in 2019. Apple reportedly plans to debut the U2 in its new iPhones and then bring it to other devices.
iPhone 15 Pro and iPhone 15 Pro Max
The iPhone 15 Pro models will have more significant upgrades. They are expected to appear slightly larger because the borders will be thinner and will have a titanium chassis, making the phone more durable and about 10% lighter. Most importantly, the Pro models will use the new A17 chipset based on the innovative 3-nanometer production process. This new chipset will improve battery time as well as performance. The iPhone 15 Pro may include new telephoto and ultrawide lenses. The mute switch may no longer be included in the Pro models, with numerous rumors claiming that a new "Action Button" will be used instead. This multi-function button could be used in many configurable ways, including acting like a traditional camera shutter button. The iPhone 15 Pro Max will see the most significant update, with a 5-6x optical zoom lens. Most importantly, the new Pro versions are expected to have a higher price.
Apple Watch Series 9
There is expected to be little change for the Apple Watch, with expectations for a significant upgrade next year. A new Apple Watch Ultra is a possibility. The Ultra 2 and Series 9 will likely get new processors and colors.
AirPods
Again, not much is expected for new AirPods other than possibly a new stand-alone USB-C charging case.
Other Possibilities
In addition to the new product announcements, there are other possibilities for Tuesday's event. A better look at the Vision Pro seems possible. Maybe a new HomePod mini. Possibly an updated iPad Mini, too. These are not expected to be sensational, but there is always the remote possibility of an "Apple Surprise."
Strategic Question: Will Customers Migrate to Higher-Priced Pro Models?
Apple has a sound iPhone pricing strategy to keep its base price models constant while increasing prices on the Pro versions and moving customers to upgrade. This increases its average iPhone selling price while enabling the "more cost-conscious" customers to enter the Apple ecosystem. This strategy may be more critical this year because there aren't expected to be dramatic improvements to the base iPhone 15.
iPhone 15 pricing rumors have varied, but most expect a price increase on the Pro versions. Most, but not all, expect price increases of $100 in both Pro models. Some suggest a more substantial increase on the Pro Max. Recent price estimates (Apple Leak Details All-New iPhone 15, iPhone 15 Pro Price Changes) indicate the following potential pricing:
- iPhone 15: starting from $799 (unchanged)
- iPhone 15 Plus: starting from $899 (unchanged)
- iPhone 15 Pro: starting from $1,099 ($100 increase)
- iPhone 15 Pro Max: starting from $1,299 ($200 increase)
Higher pricing is necessary because titanium is more expensive than stainless steel, and the additional cost of the periscope lens upgrade for the Pro Max. Apple should be able to get customers to migrate to the more expensive Pro versions for the following reasons:
- The new A17 chip will be faster and, most importantly, increase battery life.
- Some customers may be attracted to the new titanium case.
- The Pro cameras will have better telephoto and ultrawide lenses.
- The iPhone 15 Pro Max will see the most significant update, with an increased hardware zoom lens, justifying a potential $200 price increase. Those who pride themselves on having the best cameras won't be able to resist. This may even migrate previous Pro customers to the new Pro Max.
- Upgrade, subscription, and lease programs reduce the sense of a price increase with minimally higher monthly payments.
- Many U.S. carriers will discount the Pro iPhones to attract new customers.
- Finally, the Pro versions have a particular prestige value.
Recent sales estimates show that iPhone Pro models have become increasingly popular. Tech research firm Omedia (iPhone 2023 sales estimates) estimates the following iPhone sales for the first half of 2023:
- iPhone 14 Pro Max: 26.5 million
- iPhone 14 Pro: 21.0 million
- iPhone 14: 16.5 million
- iPhone 13 15.5 million
Annualizing these sales volumes could translate into a revenue increase of approximately $10 billion to $15 billion from the estimated price increases of $100 or $200 for the Max. This may be a slight but meaningful increase for Apple as it needs to maintain iPhone revenue.
Conclusion
Apple's pricing strategy will continue to work, at least for a bit longer. Apple is an astute company, and it realizes it is reaching saturation of iPhone unit sales. iPhone revenue is critical, so this pricing strategy is the best way to maintain or increase iPhone revenue.
Its pricing strategy should help increase revenue for FY2024 and maybe beyond. So, Dan Ives prediction of a stock price increase of 20% could be reasonable over the next year if it results in moving customers to higher-priced versions.
I expect the immediate reaction to the price increases to be very negative because most investors won't appreciate the importance of the pricing strategy. In the very short run, the stock price could drop due to these adverse reactions, but it will be a viable revenue-increasing strategy over the long run.
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September 09, 2023 at 06:00PM
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