How will Apple (NASDAQ:AAPL) How did the share price react to its new product announcement on Tuesday, September 12? It may be declining, but these latest product launches will continue to maintain Apple’s dominance.In particular, I expect Apple to lead the way with its controversial pricing strategy Mature iPhone market revenue.
[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 has fallen following the release of new iPhones. About 75% of the time, the stock price falls after the release of a new iPhone (build.com). Over the past decade, this proportion has fallen even higher. Generally speaking, most investors are aware of rumors about new products and trade stocks in anticipation, so this event can only be disappointing.However, with Apple shares down about 5% last week, it’s possible Most investors are already aware of this phenomenon. However, the price drop is mainly due to some China stories.
This year’s event looks predictable, with no rumors of potential surprise product releases. With the launch of this new iPhone, Apple’s main goal is to continue its strategy of pushing customers to higher-priced models, thereby increasing its overall average selling price and profit margins.
Apple launched this pricing strategy when it launched the first iPhone Pro in 2019. This strategy is to make the Pro version more attractive and entice customers to upgrade to those more expensive versions. Since then, iPhone revenue has increased or stabilized, despite a general stagnation in sales. The iPhone Pro version has the latest chipset, improved camera, and additional features. It will be the same this year.
Wedbush analyst Dan Ives predicts that this pricing strategy will trigger a 20% rise in Apple’s stock price (Wedbush said Apple’s stock price is expected to rise by 20% as iPhone 15 will drive a “mini super cycle”). His reasoning is that while the price of the base model remains the same, an expected $100 increase in price for the new iPhone 15 Pro and Pro Max models makes sense given improvements in chip, battery and photo technology. He also expects U.S. carriers to continue offering discounts and promotions, noting that 25% of the 1.2 billion iPhone user base has not upgraded in four years. Let’s take a look at the paper, but first, I’ll summarize what to expect from Apple’s announcement.
What Apple is expected to announce
Apple’s new iPhone launch event on Tuesday, September 12, is titled “Wanderlust,” but that doesn’t reveal much about the new product. As always, new iPhones are expected to be the main focus, and based on rumors and leaks, we can expect the following new launches.
iPhone 15 and iPhone 15 Plus
The rumors mainly revolve around minor upgrades to the standard iPhone models: iPhone 15 and iPhone 15 Plus. Based on history, they should be powered by the A16 chipset used in the iPhone 14 Pro version. There are rumors of slimmer bezels, the addition of dynamic islands, and a new rear camera upgrade to a 48-megapixel wide-angle camera. The Lightning port’s physical connector will also be changed to a more standard USB-C connector, though that may be unpopular. All new iPhones equipped with the U2 ultra-wideband chip will likely have improved positioning capabilities, the first update to U1 since its 2019 launch. Apple reportedly plans to debut U2 in new iPhones and then introduce 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, as the bezels will be thinner, and will feature a titanium chassis, making the phones more durable and about 10% lighter. Most importantly, the Pro model will use the new A17 chipset based on the innovative 3nm production process. This new chipset will improve battery life and performance. The iPhone 15 Pro may feature new telephoto and ultra-wide-angle lenses. The mute switch may no longer be included in the Pro models, with plenty of rumors suggesting a new “action button.” The multi-function button can be used in a variety of configurations, including working like a traditional camera shutter button. The iPhone 15 Pro Max will receive the most significant update, equipped with a 5-6x optical zoom lens. On top of that, the new Pro version is expected to be more expensive.
Apple Watch Series 9
Not much is expected to change with the Apple Watch, with major upgrades expected next year. A new Apple Watch Ultra is possible. The Ultra 2 and Series 9 may come with new processors and colors.
Likewise, expectations for the new AirPods aren’t high, other than possibly a new standalone USB-C charging case.
In addition to new product launches, there are other possibilities for Tuesday’s event. It seems possible to get to know Vision Pro better. Maybe the new HomePod mini. There may also be an upgraded iPad Mini. These aren’t expected to cause a stir, but there’s always a slim chance of an “Apple surprise.”
Strategic question: Will customers switch to more expensive professional models?
Apple has a well-established iPhone pricing strategy that keeps its base price unchanged while raising the price of the Pro version and prompting customers to upgrade. This increases the average selling price of iPhones while enabling “more cost-conscious” customers to enter the Apple ecosystem. This strategy may be even more important this year, as the base iPhone 15 is not expected to have significant improvements.
iPhone 15 pricing rumors vary, but most expect the Pro version to increase in price. Most, but not all, expect both Pro models to see a $100 price increase. Some have suggested a bigger upgrade to Pro Max. Recent price estimates (Apple leaks details of new iPhone 15, iPhone 15 Pro price changes) indicate the following potential pricing:
- iPhone 15: Starting at $799 (unchanged)
- iPhone 15 Plus: Starting at $899 (unchanged)
- iPhone 15 Pro: Starting at $1,099 (up $100)
- iPhone 15 Pro Max: Starting at $1,299 (up $200)
The higher pricing is necessary because titanium is more expensive than stainless steel, and the Pro Max’s periscope lens upgrade costs extra. Apple should be able to let customers migrate to the more expensive Pro version for a few reasons:
- The new A17 chip is faster and, most importantly, extends battery life.
- Some customers may be attracted to the new titanium case.
- The Pro camera will have better telephoto and ultra-wide-angle lenses.
- The iPhone 15 Pro Max will receive its most significant update, adding a hardware zoom lens, so the price may increase by $200. Those who pride themselves on owning the best cameras will not be able to resist. This might even migrate previous Pro customers to the new Pro Max.
- Upgrade, subscription and rental plans reduce the perception of a price increase with minimal monthly payments.
- Many US carriers will discount the iPhone Pro to attract new customers.
- Finally, the Pro version has a special reputation value.
Recent sales forecasts show the iPhone Pro models are growing in popularity. Technology research company Omedia (iPhone 2023 sales estimate) predicts iPhone sales in the first half of 2023 as follows:
- iPhone 14 Pro Max: 26.5 million units
- iPhone 14 Pro: 21 million units
- iPhone 14: 16.5 million units
- iPhone 13 15.5 million
On an annual basis, those sales could result in an increase in revenue of about $10 billion to $15 billion, with the Max’s price expected to rise by $100 or $200. This could be a small but meaningful increase for Apple as it needs to maintain iPhone revenue.
Apple’s pricing strategy will continue to work, at least for a while. Apple is a shrewd company and realizes that iPhone sales are about to reach saturation. iPhone revenue is critical, so this pricing strategy is the best way to maintain or increase iPhone revenue.
Its pricing strategy should help grow revenue in fiscal 2024 and beyond. So Dan Ives’ prediction of a 20% share price increase next year might be reasonable if it gets customers to switch to pricier versions.
I expect the immediate reaction to the price increase to be very negative, as most investors won’t realize the importance of pricing strategy. In the short term, the stock price may fall due to these adverse reactions, but in the long term, this will be a viable revenue-increasing strategy.