Apple's (AAPL) latest iPhone launch reinforces equity analysts long-term thesis that customer switching costs should enable Apple to retain most of its user base over time. The firm simply would not be able to introduce a $999-plus iPhone within the cutthroat smartphone market without a great deal of confidence in the stickiness of its customers.
The iPhone X, representing the roman numeral 10, not the letter, is Apple's long rumoured 10th anniversary iPhone at a starting price of $999, although we foresee the greater storage version being more popular at $1,149, and $1,348. Apple also introduced the iPhone 8 and 8 Plus, which we view as more traditional enhancements of last year's iPhone 7 series, but we should note a $50 boost in entry level pricing to $699 for the iPhone 8, as well as a $150 jump in pricing to higher storage models, versus $100 increases in years past. On the whole, we view Apple's iPhone pricing as a net positive, as we think that customer stickiness will allow the firm to pass along these price increases without a significant corresponding decline in unit sales.
New Apple Watch “Pleasant Surprise”
In addition to the iPhones, Apple announced the Watch Series 3 with cellular capabilities. We were pleasantly surprised to see only a $70 price increase for devices with such capabilities, starting at $399 for the Watch Sport, versus the base models. Apple Watch unit sales have not been especially material to the company in recent quarters, which is a relative disappointment compared with initial expectations for the product.
However, sales of a few million watches per quarter have already made Apple Watch the most popular watch brand in the world, while sales at these levels are consistent with early sales of both the iPod and iPhones after their first couple of years.
We've been waiting for some sort of enhancement or feature that could push Apple Watch further into the mainstream, and the launch of cellular capabilities that will allow the Watch to call, text, access Siri and Apple Music, all without being within range of an iPhone, might be such an enhancement.
Our optimism might be muted, however, by wireless carrier pricing plans – at least in the US – which may start at $10 per month to connect LTE-enabled Watches to their networks. To a lesser extent, we were also intrigued by Apple's progress on the heart monitoring front, announcing an updated Heart Rate app where the company believes it can use the Watch to detect irregular heart rhythms and notify users when they have an elevated heart rate even when they are not active.
Finally, Apple's third product announcement was the launch of an Apple TV 4K device box, which will handle Ultra HD, that is 4K, content. On the tvOS software front, Apple will bring live sports to the Apple TV box, apparently integrating sports from a variety of streaming sources like ESPN. We're also encouraged that Apple will work with Netflix and Amazon Prime to bring 4K content to the TV box as well.
Although we suspect that Apple would still like to bring its own internet TV offering to market, the company is clearly using software to aggregate content from other providers of internet TV into a better user experience in the meantime.
