Apple stock reacts to new iPhones with a meh

Summary

Genuine smart watch and iPhone innovations were unveiled at Apple’s Special Event, but they were deemed by investors to be merely iterative, so the shares fell.

Watch steals the show

Surprises were lacking. Almost all product leaks proved accurate though Watch upgrades stole the show. Apple is pushing deeper into cardiology, elderly and possibly palliative care with impressive features that enable users to take their own cardiogram, detect irregular heartbeats, and have alerts sent if they fall. 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 $10bn, it will remain relatively small by the end of the forecast period. These innovations therefore have an eye to the very long view in healthcare. With annual Watch revenues running at $6bn compared with Apple's total 2017 revenues of £229bn, the effort has not been wasted, but it isn’t the main focus.

New iPhones dull (almost) to the Max

On the surface, iPhone upgrades were perhaps the dullest, right down to the term ‘Max’ added to the new top-end model. In order of price, size, and to an extent capability, from lowest to highest, the new line-up is iPhone Xr (initially priced at $749) X and XS (both at $999), with XS Max priced at $1099. Xr is a new category. The other handsets take spots previously held by X, 8 Plus and 8S. Ironically, Xr offers rare hardware innovations. It is one of the most advanced smartphones utilising an LCD display. LCD components are on average cheaper vs. LED, so presumably, Xr was less expensive to produce, allowing Apple to pack it with features previously found at the higher end.

Processor power

Deep within their DNA, the new handsets all sport genuine feature innovations, enabled by new A12 bionic chips. For one, users can now edit depth of field effects in photos, a feature not available on any other top end handset. Such introductions, whilst subtle, probably mean iPhones can retain their ability to delight the hand, eye and to an extent, the mind of devotees, ensuring minimal drift to different platforms, whilst continuing to attract new users.

Perspicacious pricing

One key takeaway from the tweaked X range is nuanced pricing. Top-tier iPhone XS Max looks cheaper than expected. A $200 bump was widely foreseen for the zenith handset after iPhone X initially retailed at $999. With Apple’s highly prized gross profit margin in sharp focus ahead of Wednesday’s event, investors would have seized on any move to ‘give away’ proven demand inelasticity. As it stands, the stock fell after Apple's biggest ‘Special Event’ of the year, but pricing wasn’t the reason. In fact, two mid-tier iPhone Xs now occupying the previous top price point ensure the new range won’t tax quarterly gross margins at all.

On with the show

In short, little was announced at the Steve Jobs Theater on Wednesday that could blow anyone’s socks off, whilst the lack of material upgrades for Apple's fading Mac and iPad lines was a key missed opportunity. But Apple did no damage to handset revenue prospects. After a brief attempt to retake this week’s highs, Apple shares closed 1.2% lower. They even returned to the red well before CEO Tim Cook and co-presenters wrapped up. Still, with a rise of 30% this year, Apple stock has surpassed a host of high-beta technology leaders, notably achieving the $1 trillion-dollar milestone even as trade disputes intensified. The group faces questions about how it will navigate supply chain and demand risks if the U.S. and China continue to face off. But Apple keeps the edge over rivals in consumer hardware.