|Apple’s iPhone X: ‘Rich People’ Phone is a Disappointment, Says Kebanc; |
Apple generally got praise from the Street for yesterday's unveiling of the iPhone X, but Keybanc's Andy Hargreaves complains this is a "rich people" phone that calls into question the company's long-term ability to maintain prices.
By Tiernan Ray Sept. 13, 2017 5:27 p.m. ET
Apple’s ( AAPL) unveiling yesterday of the "iPhone X” has been met with generally favorable response from the Street, but not everyone is satisfied.
Keybanc’s Andy Hargreaves reiterates a Sector Weight rating on Apple shares, writing that the X was “disappointing,” prompting him to cut his estimates for the device. However, he raises his overall estimates for Apple, because the company will make more overall with price increases to its overall lineup, as some others have suggested.
"We are reducing our expected mix of iPhone X, as the device offered little that we view as compelling enough to justify a $300 premium to the iPhone 8,” writes Hargreaves.
"This is disappointing, in our view, and raises the risk that Apple will struggle to drive incremental upgrade activity in future cycles."
This is a rich people phone, writes Hargreaves, which was not what he was expecting:
We were disappointed by the lack of meaningful incremental functionality in the iPhone X vs. iPhone 8/8 Plus. This view was magnified by the $300 price premium for the iPhone X vs. iPhone 8, a substantial increase that seems justifiable only for relatively rich people who care deeply about the appearance of their phone. We believe this is a smaller group than we previously estimated and are lowering our estimated mix of iPhone X units to 22% of total volume in FY18 from our previous estimate of 32%. The lack of compelling features in the iPhone X also raises longer-term concerns about Apple's pricing power. While the Company clearly retains extraordinary brand loyalty and a strong hold on consumers through network effects, content lock-up, and learned experience with iOS, compelling new features are essential to maintain upgrade rates and prevent trade-down activity, in our view. The iPhone X suggests compelling new features may be difficult to come by going forward, which could imply a period of elongating average holding periods and falling ASPs after a peak in FY18.
Hargreaves raises his estimate for total iPhone units for the December quarter, Apple’s fiscal Q1, to 82.6 million units from 82.1 million units. For all of fiscal 2018, he sees Apple selling 239.5 million units, up from 239 million.
Apple shares today closed down $1.21, or 0.8%, at $159.65.