On the surface, the iPhone 11 may seem like just another iPhone for AAPL stock investors. However, the iPhone 11 may be much more important for Apple stock than investors realize.
What to Expect From iPhone 11
The first important component of the iPhone 11 event will be the device itself, including specs and price points. Wedbush analyst Daniel Ives is expecting the primary focus to be on the iPhone 11 Pro and the iPhone 11 Pro Max. He says these two models will represent the major technological advancements.
The iPhone 11 Pro will likely include triple lens technology. In addition, Ives is anticipating the 11 Pro will have some degree of artificial intelligence features. Video upgrades will likely include real-time re-cropping.
Pricing will also be critical. Ives is projecting a $749 price for the base iPhone, $999 price for the iPhone 11 Pro and $1,099 for the iPhone 11 Pro Max. These prices are in-line with the price points of the iPhone XR, XS and XS Max, respectively. Pricing is always critical for Apple to maximize iPhone margins without sacrificing unit sales.
Why iPhone 11 Matters for AAPL Stock
Apple stock investors always care about the new iPhone models, and for good reason. First, the iPhone still represents roughly half of Apple’s total revenue. Second, if Apple users don’t like the new model, they might buy older, cheaper, lower-margin iPhones. Third, in a worst-case scenario, Apple could lose customers all together. Apple has made its Services segment revenue a top priority. However, even Services revenue hinges on Apple keeping its customers on its own devices.
Ives says this particular iPhone class is critically important for another reason. Wedbush estimates that roughly a third of the 900 million iPhones currently in use around the world are within an upgrade window.
“Cook & Co. recognize this will be a crucial product cycle on the horizon that we believe could translate into roughly 180 million iPhone units sold in FY20,” Ives says.
The biggest difference between the iPhone market in 2019 and in years past is the red-hot trade war between the U.S. and China. Ives estimates there are between 60 million and 70 million iPhone users in China due for an upgrade. However, it’s unclear at this point how much of an impact negative trade war rhetoric will have on Chinese demand.
Trade war tensions seemed to have cooled in the opening days of September. Representatives from the U.S. and China have confirmed that talks will resume in October ahead of another round of tariffs set to go into effect in December. But AAPL stock investors are rightfully concerned about yet another breakdown in negotiations.
Ives called President Donald Trump’s calls last month for U.S. companies to seek alternatives to China a “gut punch” for Apple.
“We believe the China tariff situation is a $20-$25 stock overhang on shares of Apple as this remains the nightmare that will not go away for investors (as well as Cupertino now clearly caught in the crossfire),” he says.
Apple Stock Takeaway
Every iPhone event is important for Apple stock. This one may be more important than investors realize. Apple needs to impress existing iPhone users enough to get them to upgrade. It also needs to impress Chinese users enough for them to buy from their trade war rival.
Depending on how things play out in the next several months, AAPL stock could be in for a bumpy ride. But investors should be watching for any downturn in AAPL stock related to China or the iPhone 11 in the months ahead. Given the company’s pristine balance sheet and the stock’s reasonable 16.7 forward earnings multiple, dips could be long-term buying opportunities.
Wedbush has an “outperform” rating and $245 price target for Apple stock.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.