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Apple’s iPhone 13 reveal was largely in line with expectations. But the sales could still surprise investors.
Courtesy of Apple
On the surface, last week’s edition of
Apple
‘s
the annual fall product launch event was kind of a yawn. There weren’t many surprises, the new iPhone 13 line-up was as expected, and the iPad and Apple Watch upgrades were far from groundbreaking.
But dig a little, and you can find a lot to chew on. The biggest takeaway is that Apple’s outlook (ticker: AAPL) is a little brighter than street skeptics would have you believe.
No doubt the iPhone updates were incremental, mostly under the hood tweaks. The notch at the top of the screen is smaller, and the new A15 bionic processor in the heart of the phone is faster than the A14 chip on the iPhone 12. There is longer battery life, cameras improvements and higher memory capacity at comparable prices.
A few analysts see the new option for a terabyte of flash memory storage on the iPhone 13 Pro models as a big deal. While it’s not entirely clear to me who needs that much capacity, the trend towards higher average storage on phones is a good thing not only for Apple, but also for memory chipmakers. .
Western digital
(WDC) and
Micronic Technology
(MU). Base model phones now have twice the storage capacity of last year. The $ 799 iPhone 12 had 64 gigabytes of storage; this year, the same price comes with 128GB. Last year, a 256GB phone would cost $ 949; this year you can have the same capacity for $ 899. If you want a top-of-the-line 6.7-inch Pro Max with a terabyte of storage, that’ll set you back $ 1,599.
Bernstein analyst Toni Sacconaghi sees Apple’s pricing strategy as designed to continue an upward trend in the average selling prices of iPhones, or ASPs. He estimates that Apple is on track for an 18% year-over-year increase in ASPs for the September 2021 fiscal year. He reports that iPhone ASP earlier this year reached over 880. $, the highest since the phone’s launch in 2008.
Driving the trend is an apparent consumer preference – at least among iPhone 12 enthusiasts – for the top-of-the-line Pro and Pro Max models, which it says have margins 10 percentage points higher than those of the non Pro models. (Apple apparently generates huge margins on incremental memory.) Sacconaghi calculates that, if the iPhone sales mix on the new lineup is comparable to that of the iPhone 12, average selling prices would be up $ 5. %.
Katy Huberty of Morgan Stanley focuses on both the profitability of new phones and affordability. She agrees the big news could be Apple’s decision to boost iPhone profits by pushing up average prices, but notes that aggressive carrier promotions and take-back deals increase affordability and should keep the price going. dynamic demand. Huberty notes that
AT&T
(T) and
Verizon
(VZ) are offering more aggressive promotions for the iPhone 13 than the 12, no doubt reflecting their need to route traffic to 5G networks after spending billions to buy spectrum and build faster infrastructure.
Jefferies analyst Kyle McNealy goes so far as to suggest that carrier promotions were the biggest news of last week. AT&T, Verizon and
T-Mobile United States
(TMUS) are all offering the base model of the iPhone 13 for free to qualifying customers. AT&T will give you a Pro for free. Trade in an iPhone 12 Pro Max on T-Mobile and you can have a free iPhone 13 Pro Max. Apple wants to expand its user base, retain customers and drive service growth. Operators want to boost 5G. Consumers get better phones. It’s a win-win-win.
Huberty notes that only about 5% of the installed iPhone base uses 5G; it expects an “extended” 5G adoption cycle that should keep demand for new phones high. “If early reports point to high iPhone demand relative to low buying expectations, we expect Apple stocks to outperform in the near term,†she wrote in a research note.
One of the trickiest parts of history for investors will be an inevitable slowdown in Apple’s growth rate. Street estimates call for a drop in sales growth from 34% in fiscal 2021 to less than 4% in fiscal 2022. But if demand for the iPhone holds up, aided by the support of 5G operators, sales gains could be higher. Loup Ventures co-founder Gene Munster, who followed Apple as an analyst, told me last week that he believed growth would be closer to 10%. Keep in mind that in fiscal 2019 – prepandemic (and pre-5G) – Apple sales fell 2% from the previous year, with iPhone sales down 5%. Munster sees a path for the stock to reach $ 200 per share, a third more than today.
A quick update: As featured here last week,
Cisco Systems
(CSCO) held its first analyst meeting in four years on Wednesday, facing a mixed reaction. Cisco is experiencing both revenue and profit growth of 5% to 7% per year through the July 2025 fiscal year, driven by 15% to 17% growth in its subscription business. Cisco also affirmed its policy of returning at least 50% of free cash flow in the form of dividends and redemptions.
But there were minor disappointments. Some investors had hoped for a more aggressive approach to repurchasing shares and they were disappointed that Cisco did not project operating leverage, with earnings expected to grow in line with earnings. This reflects higher component costs due to shortages and a desire to invest in growth. Cisco CEO Chuck Robbins estimates the company’s addressable market at $ 400 billion, with an additional $ 500 billion in companies it does not currently handle. Don’t be surprised to see mergers and acquisitions pick up again.
Bottom line: I repeat my point from last week. Cisco is cheap, and there is a path to substantial gains.
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