Apple relying on upscale shoppers to turn latest iPhone into a hit

iPhone 14

The latest iPhone is hitting stores Friday, and Apple Inc. is counting on well-heeled shoppers to make the device a hit during a year of roaring inflation and shaky technology spending. 

The iPhone 14 lineup reserves the best features for the high-end Pro models costing at least $1,000. And based on preorder data, the strategy is already working with consumers, who have turned the most expensive new iPhone into the most popular version.

Though overall spending on mobile devices and computers is slowing this year, there’s still an appetite for top-tier smartphones -- Apple’s strength. That’s allowed the company to hold production steady at a time when much of the industry is scaling back plans.

"The data continues to point to robust demand for the iPhone 14 Pro and Pro Max, which could have a materially positive impact for both mix and margins,” Amit Daryanani, an analyst at Evercore ISI, said in a report this week.

The iPhone 14 line was unveiled earlier this month alongside new Apple Watches and AirPods. The company didn’t raise prices, a surprise to analysts who thought inflationary pressure would force the move. But Apple is still attempting to upsell consumers more than ever before.

The standard iPhone, which starts at $799, doesn’t even run Apple’s latest processor, the A16. Instead, it uses the same A15 chip as last year, with the A16 going into the Pro models. The Pro phones also get significant camera improvements and a new interface called the Dynamic Island.

That’s left users with less reason to upgrade to a basic iPhone 14, but plenty of incentive to pay a little more for the Pro. A flurry of carrier promotions and trade-in offers also may coax consumers into buying a glitzier model.

Apple reshuffled its display configurations this year as well. Gone is the mini version of the iPhone. Instead, the company is betting that consumers want more screen real estate. The non-Pro iPhone 14 will come in a 6.1-inch model and a 6.7-inch Plus version that won’t be available until Oct. 7.

The preorder data suggests the iPhone 14 Pro Max is more in demand than the same model was last year, part of the shift upscale, according to a report by KGI Securities.

The question now is whether that momentum is strong enough for Apple to overcome a broader slump. Worldwide the smartphone market is expected to decline 3.5% to 1.31 billion units this year, according to market research firm IDC.

In China, both a manufacturing hub for Apple and a key market, smartphone sales have tumbled this year. But Apple shipments are up 5% compared with an overall decline of 23%, according to Evercore ISI’s Daryanani.

"Apple continues to gain significant share in China and we expect the share gains to continue,” he said.

A successful iPhone 14 launch could help ease investor jitters after a roller coaster of a month. The stock has whipsawed between gains and losses in recent trading sessions, with the shares suffering their worst single-day rout since 2020 on Tuesday. A higher-than-expected inflation report and concerns about interest rate hikes have hit tech stocks especially hard.

Apple shares are down 16% for the year, though that’s a bit better than the S&P 500, which has fallen 19%. The tech-heavy Nasdaq Composite Index has tumbled 27%.

Analysts expect Apple sales to tick up 6% this quarter, a deceleration from the 29% gain it saw a year earlier -- when pandemic-bound consumers were still snapping up technology. The iPhone 14 is coming out a couple weeks earlier in the year than usual, which should help shore up Apple’s revenue in the September quarter. The company’s biggest sales period of the year is usually the December quarter, lifted by holiday spending. Sales in that period are expected to gain 3%, according to analysts’ estimates.

The iPhone is unrivaled among Apple’s products in its importance. It provides about half of the company’s total revenue and helps spur sales of other devices, including the Apple Watch and AirPods. Both of those categories got makeovers during the recent launch, further spotlighting the company’s high-end focus.

The company unveiled a update of the AirPods Pro and a first-ever Apple Watch Ultra model, which -- like the Pro iPhones -- is designed to be both bigger and better. And, of course, it will cost a bit more.

SOURCE: Bloomberg