Excerpts from the notes I’ve seen. More as they come in.
Toni Sacconaghi, Bernstein: Our 5 key takeaways. 1) Our key question leading into the event was whether Apple would exercise its pricing power… and the answer appears to be yes. Apple’s final pricing for the three new iPhones ($749 / $999 / $1099) was in-line-to-above our own already-above-consensus estimates ($799 / $949 /$1049). Moreover, Apple (a) raised prices on the Apple Watch by $100; (b) introduced a higher-priced 512 GB configuration; and (c) dropped both the iPhone SE and 6S at the low-end. We worry incrementally about the potential impact to unit volumes, as we believe that investors are likely to be spooked by a YoY decline in iPhone units. Market perform. $200.
Katy Huberty, Morgan Stanley: Raising iPhone ASPs Post iPhone Launch. While this iPhone launch was marketed as an “S” cycle, iPhone ASPs and larger storage SKUs across the portfolio surprised to the upside, as did the inclusion of dual-SIM capabilities. On the negative side, the availability date for the iPhone XR (October 26th) was a bit later than we expected but still in-line with last year’s iPhone X availability date. We don’t see the later ship date materially impacting unit demand in C2H18, particularly given most early adopters will skew to the XS Max, in our view… While we keep our FY19 unit expectations unchanged, we raise our FY19 iPhone ASP estimate to $793, up 6% Y/Y vs. our prior estimate of $739 (-2% Y/Y). Furthermore, with higher pricing we’d expect a stronger gross margin profile for the new iPhone SKUs, especially considering the falling price of both DRAM and NAND. Overweight. Raised price target to $247 from $245.
Ben Schachter, Macquarie: No Big Surprises. Overall, there were no big surprises (as most everything leaked), but we come away incrementally more positive given AAPL’s likely ability to raise iPhone ASPs. Additionally, the news was positive for Services in terms of increased AppleCare pricing, the addition of theft/loss insurance, and increased potential for health care apps. Increasing health care apps are among the biggest potential LT positives. Outperform. Raises price target to $235 from $214.
Rod Hall, Goldman Sachs: Trimming ASPs due to XR pricing and mix changes. The early elimination of the lower priced iPhone 6s and SE ranges combined with lower iPhone XR pricing drives our ASP expectations 7.0% lower for FQ1’19 to December and also reduces our ASP forecast for next year by 5.6% to $748. Within our detailed model we have assumed the iPhone XR soaks up more volume from iPhone 8/8+ models that price overlap due to the issues we mentioned earlier. We also assume higher ASPs for the small volumes we had previously been expecting for the SE and 6s. However, the reduction in pricing expectation for the high volume iPhone XR in our model more than offsets these positive mix changes. We don’t currently assume the lower XR prices result in lower margins… We note the absence of heavily reported updates to the Mac Mini, Macbook and other products like Airpods and AirPower which may point to another Apple event in October. Neutral. $240.
Walter Piecyk, BTIG: Performance matters. The upgrade to an A12 chip enables 5 trillion operations per second. We believe this could provide a noticeable improvement in speed to the end user compared to the 600 billion operations per second of the legacy A11 chip. All three new iPhones will benefit from the new chip. Physical damage may be a more obvious driver of phone upgrades, but material increased performance should not be underestimated. It will be interesting to see how much advertising, if any, is built around this improvement. Increased performance also can enable new applications as demonstrated at the event yesterday. Buy. $235.
Wamsi Mohan, Merrill Lynch: ASPs continue to reflect value provided. We attended Apple’s “Gather Round” event at the Steve Jobs theater at Apple’ s headquarters in Cupertino, CA where, as expected, Apple launched two new OLED iPhones (5.8” XS, 6.5” XS Max) as well as a new 6.1” LCD iPhone (XR)… We adjust our estimates to account for higher storage options that drive some upside to our current ASPs, which are already higher than Street ASPs, and for the discontinuance of iPhone SE and 6S. Buy. Raised price target to $256 from $250.
Tim Long, BMO: We believe most of the iPhone enhancements were minor, focused mostly on better hardware specs. The new iPhone XS Max could appeal to those looking for larger devices, while the XR seems to be the best value, though shipping a month later. later. The Watch 4 should be successful, as incremental health apps could be compelling. We do not see the new iPhone driving a replacement cycle, but they should yield higher ASPs. Market perform. $199.
Aaron Rakers, Wells Fargo: Higher iPhone Prices ($850+ ASP Upside?) & Watch Health Integration. What We Think Matters Most – New iPhone Price Bands Leaving Us to Focus on $850 iPhone ASP Upside: With the details of Apple’s iPhone XS / XS Max and iPhone XR now known (largely expected – 5.8” and 6.5” OLED iPhones and 6.1” LCD iPhone; new high-end 512GB Flash capacity), we think investor attention will now focus on the model implications of Apple’s higher iPhone prices. Apple is now offering the iPhone 7 as its entry-level phone at $449 (vs. prior iPhone SE at $349) and the high-end iPhone XS Max carries a $1,099 entry point (vs. prior iPhone X at $999; 5.8” iPhone XS maintains prior $999 entry point) – note: we think Apple’s iPhone XS capacity points at 64GB / 256GB / 512GB will continue to drive a richer mix shift. Based on historical iPhone ship mixes, we think investors could now question a blended iPhone ASP upside into the $850 range for C4Q18. Market Perform. $210.
Abhinav Davuluri, Morningstar: Economic Moat. We don’t think Apple can charge twice the price of a similar set of hardware solely by sticking an Apple logo on it. Similarly, we suspect that Apple’s brand equity will wane if the firm’s products were technologically inferior to competitors over an extended period of time… The current active installed base of Apple devices reached 1.3 billion in early 2018, showing the strong stickiness Apple has created. However, these switching costs are not insurmountable, illustrated by the rise and fall of former mobile device titans such as Nokia, Motorola, and BlackBerry… The short product cycles for phones and the inability of these firms to sufficiently innovate left each one struggling after the debut of Apple’s iPhone and its subsequent proliferation. Apple is not immune to these pitfalls, as consumer sentiment for technology gadgets can be unforgiving, with one buggy or subpar product potentially driving customers to other companies’ offerings, which have been increasingly competitive. Overvalued. Raises Fair Value Estimate to $200 from $175.
Jun Zhang, Rosenblatt: Apple Special Event Takeaways. We believe the iPhone XS may not offer enough of a product upgrade from the iPhone X to drive sales. Although the iPhone XS has a dual camera system, our research sug- gests consumers would prefer a larger screen display. This leads us to believe that the iPhone XS might not sell in the market. However, we do believe the iPhone XR and iPhone XS Max will perform well in the market. The $749 retail price for the iPhone XR, which was $50 higher than our estimates, is an attractive price point to consumers, while the iPhone XS Max targets a limited high-end market. Buy. $200.
Angelo Zino, CFRA: Quick take. We also like enhancements to the Apple Watch Series 4 (priced at $399/$499 for GPS/cellular options), which has a 30% larger screen and more powerful S4 chip with the ability to detect falls/take an ECG. Price points for all devices are modestly higher than we thought and could provide revenue/EPS upside via higher selling prices. We also think initiatives towards making the Apple Watch a more healthcare oriented device while having a larger display will support higher sales. We view the absence of commentary on AirPods and AirPower as disappointing. Buy. $255.
Michael Olson, Piper Jaffray: Biggest iPhone Upgrade This Year = Choice. We believe a broader spectrum of choices for next gen form factor iPhones will drive unit upside vs. current consensus in FY19 (we are modeling 223M vs. consensus at 219M). Regarding iPhone ASP, based on the new lineup, unit mix assumptions drive our ASP estimate higher, resulting in upwardly revised overall revenue and EPS for Apple in FY19E & ’20E. The launch of a wider array of “X-gen” iPhones is providing an iPhone user base that is on an aging installed base of devices with more choices to upgrade to the new form factor. Based on this, we recommend owning AAPL for the “super-long” cycle involving an ongoing multi-year move to the “X- gen” iPhone lineup. Overweight, $250.
Gene Munster, Loup Ventures: Larger Screens Are Good for ASPs and Unit Growth. This is the largest increase in screen size since 2014 when the iPhone 6 display jumped 35% from the iPhone 5s. At the time (FY15), consumers responded to the larger display size, propelling a 37% increase in iPhone units (up from 13% in FY14). ASPs also moved higher, growing 12% y/y ($599 to $669). This increases our confidence in our FY19 iPhone unit growth of 3%, compared to the Street at 0%. Separately, we are now modeling for a 7% ASP increase in FY19 (to $791), compared to the Street at 2% ($756). If the iPhone units reach FY15 levels of 231M units, overall iPhone units would grow 6% in FY19. This comparison increases our confidence in our current 3% iPhone unit growth target.
Andrew Uerkwitz, Oppenheimer. New Apple Watch gets major upgrades in display, motion tracking, and heart rate monitoring, an overall bigger design leap comparing to last year’s. New iPhones come with widely anticipated performance improvements in processors, displays, cameras, and machine learning capabilities. The 6.5″ iPhone Xs Max pushes iPhone pricing to a new high of $1,499. Apple finally adds dual SIM support to iPhone, which we believe will warrant incremental share gain in near term. Overall, the press event showcased Apple’s well understood strength in pricing power and hardware-software integration. Hold.
Laura Martin, Needham: Buy. Raised price target to $260 from $220.
Nehal Chokshi, Maxim Group: Hold. Raised price target to $221 from $200.
Sherri Scribner, Deutsche Bank: Hold. Raised price target to $206 from $175.
Jim Suva, Citi: Buy. $230.
Neil Shah, Counterpoint Research: Apple Watch Series 4 Steals the Show. With Apple Watch Series 4, Apple has cemented its leadership & own this category completely. Innovations such as Fall detection, ECG has widened the gap with competitors. Further, an ecosystem of quality developers will leverage these features even further, driving adoption. With base model at $399 (GPS) and $499 (GPS+Cellular) it could be slightly expensive for many and could drive up sales for Series 3 cellular ($379) instead.
Aaron Tilley, The Information: The iPhone gets bigger. With the iPhone XS Max, Apple has launched its largest phone ever with a 6.5-inch screen. That’s bigger than even Samsung’s famously large Galaxy Note phones at 6.4 inches. Previously, Apple’s biggest phones measured only 5.5 inches. There are good reasons for Apple to go bigger. When Apple moved to a larger-sized iPhone with the 6 Plus in 2015, the company experienced a massive spike in demand. People typically use more apps—such as watching videos or playing games— with larger phones. Increased app usage will help drive more App Store and online services revenue for Apple.
Dan Gallagher, Wall Street Journal: Apple’s Biggest Screen Grab Yet. Apple pulled off a notable accomplishment at its annual iPhone refresh on Wednesday. The world’s most valuable company managed to raise its prices without seeming to do it… The upshot is Apple is now selling 17 configurations of its iconic smartphone, with prices ranging from $449 to $1,449. The company’s previous lineup ranged from $349 to $1,149, though Apple did cut prices on some older phones. That means the average price in Apple’s lineup has gone from about $692 to $875, a 26% jump. Apple now has five iPhone configurations priced above $1,000 compared with only one before.
Ben Thompson, Stratechery: The iPhone Franchise. This year, then, comes the fully-formed iPhone juggernaut: an even more expensive phone, with arguably one of the weaker feature-driven reasons-to-buy to date, but for the fact it is Apple’s newest, and best, iPhone. And below that, a cheaper iPhone XR that is nearly as good, but neatly segmented primarily by virtue of not being the best, yet close enough to be a force in the market for years to come… That is the iPhone: it is a franchise, the closest thing to a hardware annuity stream tech has ever seen. Some people buy an iPhone every year; some are on a two-year cycle; others wait for screens to crack, batteries to die, or apps to slow. Nearly all, though, buy another iPhone, making the purpose of yesterday’s keynote less an exercise in selling a device and more a matter of informing self-selected segments which device they will ultimately buy, and for what price.
Horace Dediu, Asymco: Lasts longer. I think Lisa Jackson’s presentation at the September 2018 iPhone launch event was perhaps the most interesting and most profound… Apple now strives to design and build durable products that last as long as possible. That means long-lasting hardware coupled with long-lasting software. She pointed out that iOS 12 runs even on iPhone 5S, now five years old. Because iPhones last longer, you can keep using them or pass them on to someone who will continue to use them after you upgrade… The important call to make is that Apple is making a bet that sustainability is a growth business. Fundamentally, Apple is betting on having customers not selling them products.