Why the iPhone XR Could Be a Game Changer for Apple

iPhone XR - Why the iPhone XR Could Be a Game Changer for Apple

Source: Apple

On Friday, pre-orders begin for Apple’s (NASDAQ:AAPL) third new iPhone of 2018, the iPhone XR.  With its combination of features from the flagship iPhone XS series, bright new colors and a $749 price tag that makes it $250 less than than the cheapest iPhone XS, the iPhone XR is the smartphone that could be a game changer for Apple. Analyst Ming-Chi Kuo is bullish on the new iPhone’s prospects among upgraders and has now upped his estimates for the number of units Apple will ship this year by 10%. 

If he’s correct, there is significant upside for AAPL stock, which never saw the expected “upgrade super cycle” with the iPhone X release in 2017. 

Analyst Predict Higher iPhone XR Demand Than Originally Expected 

When Apple first announced the iPhone XR at its September event, there was a sense that the the most affordable iPhone may just turn out to be the one to watch. 

The $999 iPhone XS is an upgraded iPhone X, and the XS Max is just bigger — and more expensive. The iPhone XR offers the key features of the flagship XS series, including an edge-to-edge display, TrueDepth camera with Face ID, A12 Bionic CPU and the same camera as the iPhone XS. It has a display larger than the XS, and the best battery life of the 2018 iPhones. There are trade-offs, such as the use of an LCD display panel instead of OLED and an aluminum frame instead of stainless steel, but the iPhone XR is still very much a premium smartphone. Adding to the appeal, Apple is offering the phone in a range of bright colors.

The kicker is the $749 price tag. That’s less than the $799 Alphabet’s (NASDAQ:GOOGL) Google is asking for its least expensive new Pixel 3 phone.

The potential is obvious.

Apple analyst Ming-Chi Kuo (via MacRumors) likes the new iPhone’s prospects. In a note to investors, he has revised his shipping estimates, citing better than expected demand. In particular, he spikes out the Chinese market. Here, he expects the iPhone XR to outperform last year’s iPhone 8 thanks to its larger display, new form factor, long battery life and dual-SIM support.

Kuo had previously expected Apple would ship 33-35 million iPhone XR units in Q4. He has now revised that to between 36 million and 38 million. Added to the iPhone XS series, Kuo is predicting AAPL will ship a total of 75-80 million iPhones in Q4.

If he’s right, that means overall iPhone shipments could hit record numbers (with obvious implications for AAPL stock). Last year Apple topped 77 million on the quarter, which was a 1.3% decline over 2016’s numbers.

iPhone XR Could Also Reduce Seasonal Shock

The first quarter of each year is traditionally a slow time for Apple’s iPhone sales. After the rush of upgraders and new buyers when the new models come out, there’s usually a pause. That effect was felt strongly this year, with iPhone 8 shipments dropping 45-50% in Q1 2018.

However, Ming-Chi Kuo feels the iPhone XR is going to buffer Apple against that effect next year. He notes:

“We expect XR shipments to beat low seasonality in 1Q19. We forecast that XR shipments in 1Q19 will decline 25-30% QoQ to 27-30mn units.”

While part of that reduced decline can be attributed to the fact that the iPhone XR was delayed and is releasing a month after the XS series, Kuo also predicts there will be more demand for the iPhone XR as an upgrade from an existing iPhone than there was with last year’s iPhone 8.

Overall, he’s calling for Q1 2019 iPhone shipments to grow 10% to 55-60 million units, with the iPhone XR making up fully half of those numbers.

All good news for AAPL investors, but also all predictions. The iPhone XR is available for pre-order starting Friday October 19. After that, we should start getting a pretty good sense of whether the new affordable iPhone is going to a hot seller, or another ho-hum iPhone 8 level release. 

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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