Apple (NASDAQ:AAPL) unveiled its latest iPhone 14 devices, along with new versions of the Apple Watch and Airpods earphones at a special event held on Wednesday.
While we were expecting Apple to raise prices on the iPhone this year, given higher component prices and supply constraints, the company surprisingly held on to prices across the lineup. However, we think it’s still likely that average pricing for iPhones will trend higher in this cycle as well, for a couple of reasons. Apple launched two Pro versions and two standard versions of the device. We think that Apple should be able to upsell a great mix of customers to the Pro versions of the devices (which start at $1,000) this time around, as they appear like a much better value proposition. For example, the Pro devices offer exclusive features such as always on display, significant camera improvements, and design tweaks with the signature iPhone notch (which houses the front camera and face ID sensor) being replaced by pill-shaped cutouts that surface alerts and notifications. Coming to the regular iPhone 14, Apple has maintained the $800 price point on 6.1-inch devices although it has replaced the $700 iPhone Mini with a pricier 6.7-inch model that starts at $900. Apple has also retained last year’s mobile chipset, the A15, on the iPhone 14, in a move that could help to bolster margins to an extent given that chip production costs and production yields improve with time. Apple continued with this strategy of premiumization within its Apple Watch lineup as well, launching a new Apple Watch Ultra, priced at $800, compared to the $400 for the mainstream Apple Watch models.
The launch of the new devices comes against a relatively challenging macro environment. U.S. GDP has contracted over the last two quarters and consumers have been scaling back on retail spending amid rising inflation while prioritizing services and experiences. However, we don’t think that the uptake of Apple’s new devices will be meaningfully impacted. For perspective, over the last two quarters, iPhone sales rose by an average of 4% versus last year, despite the broader economic contraction. Moreover, wireless carriers appear to be heavily promoting the new devices, as they see them as an opportunity to bring more high-value customers onto their newly built 5G networks. For example, both AT&T and T-Mobile are offering the new iPhone 14 Pro to customers for free under certain conditions.
We have a $178 per share valuation for Apple, which is about 14% ahead of the current market price. See our analysis on Apple Valuation: Is AAPL Stock Expensive Or Cheap? for an overview of what’s driving our price estimate for Apple. Also, see our analysis of Apple revenue for more details on the company’s key revenue streams and how they have been trending.
With inflation rising and the Fed raising interest rates, Apple has fallen 12% this year. Can it drop more? See how low can Apple stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-16%||78%|
|Trefis Multi-Strategy Portfolio||0%||-15%||235%|
 Month-to-date and year-to-date as of 9/8/2022
 Cumulative total returns since the end of 2016