The buzz surrounding the new Apple (NASDAQ:AAPL) iPhone XR is palpable. The company will begin taking orders for them this week, and begin shipping them next week. Apple stock, which had been weighed down by marketwide selling earlier this month, is finding traction again. At least one analyst believes the more affordably priced device could translate into record-breaking sales (by unit) for the quarter ending this month.
The buzz may well be justified. And, the analyst in question — TF International Securities’ Ming-Chi Kuo — may well be right. Apple could very well sell a stunning number of iPhones in the coming weeks now that it’s also offering models in the middle portion of the price spectrum.
In a subtle way, most current and prospective owners of AAPL stock don’t fully appreciate, though, the fourth quarter could end up being a pivotal moment for the company’s flagship product.
What He Said
The iPhone XR, for those that can’t keep up with Apple’s nomenclature, is one of the newest iterations of the iPhone, unveiled in September along with the XS and the XS Max. They’re follow-ups to the iPhone X, which launched in November of last year, and are distinctly not part of the iPhone 8 family.
That’s not the interesting part of the recently-unveiled smartphone lineup, however. What’s interesting is that Apple has made an iPhone affordable again. The iPhone XR starts at only $750, whereas its more potent XS and XS Max cost no less than $1000 each — and go for even more depending on the bells and whistles included.
Ming-Chi Kuo believes that price point is a sweet spot Apple wasn’t hitting before.
End result? Kuo upped his iPhone shipment estimates for the quarter currently underway to a range of between 78 million and 83 million units, anticipating that between 33 million and 35 million of them would be of the XR variety. Even at the lower end of that range, Apple would be getting close to its 2017 first-quarter record shipments of 78.3 million iPhones.
Better yet, Kuo expects the lower-cost phone to abate the usual steep slowdown seen in the quarter following a new product launch. Rather than the usual 30% to 40% sequential lull, the analyst is only expecting the next quarter’s unit sales to slump between 25% and 30%, as consumers decide they can afford the lower-cost XR after all.
If there was ever a time for Apple to bump into an unexpected headwind, however, this is it.
The Mid-Priced Competition Is Tough
It’s largely been obscured by the XR news and the recent marketwide selloff, but two of Apple’s biggest smartphone competitors just unveiled phones that could turn the heads of some prospective iPhone buyers.
One of those other players is, of course, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), which recently introduced the Pixel 3. Reviewers are raving. For smartphone users that insist on a top-notch camera, the Pixel 3XL arguably outshines the XR’s respectable-but-not-game-changing picture-taking tech, while other consumers may be thrilled to simply learn that the Pixel 3 series lets you use USB-C earbuds.
The third generation of Pixel smartphones start at $800, which is more or less in-line with the iPhone XR.
Google isn’t the only player owners of Apple stock have to worry about, however. Remember Huawei, the company that sold more smartphones than Apple did during the second quarter? It just unveiled a new smartphone too — the Mate 20 lineup. Though they won’t be available in the United States (at least not yet), they start at around $1000 apiece, but may well be worth it to consumers that insist on the best of the best Android-powered smartphones. In the meantime, Huawei’s P series and Mate 10 smartphones are priced more in line with the Pixel 3 and the iPhone XR and, more importantly, give would-be iPhone buyers something else to strongly consider.
And consumers are clearly considering Huawei’s wares. Again, the company outsold Apple during the second quarter of this year.
Bottom Line on Apple Stock
This quarter will either demonstrate just how much of a draw the Apple name really is or indicate that most consumers were only waiting on something that competes with the iPhone on all fronts, including price. It was a showdown that, in retrospect, was inevitable even if it took a long, long time to take shape.
Don’t read more into this message than is intended. Most anyone who’s had a stake in Apple stock for any length of time knows the organization has been cultivating other ways to drive revenue, knowing that iPhone sales would eventually hit a ceiling (even if they haven’t actually done so yet). The company’s “Services” division is the big growth engine for the time being.
Nevertheless, much of the support Apple stock seems to stem from excitement surrounding the iPhone. If the company falters on that front, it could easily spook the market. It’s a fight that’s coming though, whether Apple wanted it or not.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
