It’s September so Apple (AAPL) is getting ready to take the wraps off of a new iPhone, however this one is going to be a bigger deal than most. This is why.
Every year around this time executives reveal new products. The most plugged-in analyst says this year’s event will show off an iPhone that looks nothing like previous devices.
Change means bigger sales. Investors should use recent weakness to buy Apple.
By most accounts iPhone is a lucrative yet mature business. It has been the gift that has kept on giving ever since 2009 when the first iPhone sent shockwaves through the tech sector. Back then, critics were numerous. Analysts said it was too expensive. Steve Balmer, then the chief executive at Microsoft (MSFT) said it would flop because it didn’t have a keyboard.
iPhone succeeded in part because it didn’t look like any other device.
Ironically, the new iPhone is going to look like millions of Samsungs, according to Ming-Chi Kou, an analyst at TF International Securities. Kou, mostly due to his perch in Asia where iPhone parts are sourced, has a terrific track record predicting the components used in new iPhones.
He says the flagship iPhone Pro Max will ditch the iconic notch in favor of hole punch cutout for the front facing camera. While that will make it Samsung-esque, it will be unlike any iPhone on the planet. And that is likely to be a huge selling point.
A number of other camera upgrades are planned, too. In another tweet, Kou says his sources say the new iPhone lineup will get sensors made by Sony (SONY) for better low light sensitivity, and a new wide angle lens for the top of the line devices.
A possible big benefit to shareholders is pricing. According to Kou, Apple is expected to raise the price of the Pro and Pro Max devices by 15%. While executives at the Cupertino, Calif.-based company may blame the price increases on inflation, history shows that most of the premium will fall to the bottom line in the form of higher profits.
Apple dominates smartphone profitability because its customers are fiercely loyal, thumbing their noses at all other smartphone brands. Higher prices simply mean bigger profits at Apple.
A survey of American teens by the research firm Piper Sandler showed that 90% plan to buy an iPhone as their next device. A staggering 87% already own iPhones.
That stranglehold on the future of American market is driving adoption of other products in the ecosystem. The Apple Watch is the best-selling watch in the world, according a note from International Data Corp. AirPods, the iconic while earbuds, began as the wireless replacement to free EarPods that came packed with every new iPhone. During the span of only six years that business has grown from a standing start to 90 million pairs sold during the 2021 holiday season.
None of this has been lost on investors. Apple is now the largest public company in the western world. At a share price of $158.91, its market capitalization has grown to $2.65 trillion.
Shares have been under pressure since the middle of August with the rest of the technology sector. There is mounting concern the Federal Reserve will raise rates too aggressively, leading to an economic recession. There is no way to know if that will be true, yet macroeconomic events are unlikely to change Apple’s core business.
That franchise is largely immune to competitors because they are unable to make iPhones and other devices within the Apple ecosystem.
The new iPhone coming in September will be especially sought after. It looks like no other device in the Apple product family.
Shares trade at 24.6x forward earnings, and 6.8x sales. Given the near and longer-term prospects for profit growth, investors should use this weakness to accumulate shares.
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