As usual, Apple (NASDAQ: AAPL) is substantially down from its highs of nearly $ 175 just a month ago after their annual iPhone launch event sparked investor interest. The tech giant failed to impress without the launch of a mixed reality device to compete with Meta platforms (HALF). My investment thesis remains bearish on the stock with another failed break of strong resistance to recent highs.
Mixed question message for iPhone 14
Fresh from wrongly predicting a price hike for iPhone 14 models, especially Pro models, influential analyst Ming-Chi Kuo now claims a production shift towards iPhone Pro models. Just 12 days after the Far Out event that launched the new iPhone, Apple would have completely misdiagnosed the demand for each model to shift production already.
Apple would certainly benefit from a consumer buying the more expensive Pro models due to the price differences. The big question is whether consumers are actually buying the higher priced items, with the economy potentially in recession and certainly facing higher inflation.
The actual breakdown of the starting price for the various versions of the iPhone 14 is as follows:
- iPhone 14 – $ 799
- iPhone 14 Plus: $ 899
- iPhone 14 Pro: $ 999
- iPhone 14 Pro Max: $ 1099
The data seems to suggest that consumers are buying iPhone 14 Pro models due to the limited value of the 14 Plus. The 14 Pro costs just $ 100 more than the Plus. Forbes even claims to buy a refurbished iPhone 13 Pro Max at a discount on the iPhone 14 Plus.
The data doesn’t really question whether consumers are switching to Pro versions, but it does question volumes. A consumer who wants a large-screen smartphone could forgo the upgrade for another year when the best option starts at $ 1,000 for the basic version.
Other reviews actually suggest that consumers should buy a new iPhone 13 for just $ 699 while reducing the money paid to Apple this cycle. IPhone 14 models may technically raise higher average selling prices due to the change in purchased models and the elimination of the mini, but the consumer has every reason to look for a cheaper option.
The whole key to the iPhone 12’s launch was the 5G chip. All the other updates in the iPhone 13 and now 14 models are minor improvements that consumers can take or leave without too much indigestion. However, a consumer doesn’t want a new phone without a 5G chip that would leave the smartphone far behind the speed capabilities of the network over the next couple of years. Very few consumers actually care about a better camera, processor, or emergency SOS feature.
The latest news of a camera defect in the iPhone 14 Pro Max could hit volumes in the short term. The Guardian reported that owners see the camera broken when using popular apps like Instagram and TikTok.
Outside of an unexpected persistent problem, Apple will undoubtedly fix any camera-related issue in a relatively short time. The tech giant won’t see any long-term impact on sales, but this camera issue could impact sales over the holiday period, with consumers looking to shift purchases to Pro models.
What Investors Always Lose
Investors need to understand that analysts are uniformly bullish on Apple and these factors are included in earnings estimates. The analyst community has 23 buy ratings on the stock and only 1 sell rating.
Wedbush analyst Dan Ives has demand for the iPhone 14 corresponding to or slightly higher than iPhone 13 sales at around 220 million per year. As discussed earlier, the only way for Apple to increase sales is through higher ASPs from a move to more expensive models, with iPhone 14 prices identical in the US to Model 13 and volumes starting at the same level.
With a higher ASP of $ 100, Apple could increase FY23 sales by as much as $ 22 billion. This best-case scenario would only increase iPhone sales by 10% from the FY22 level, which is expected to approach $ 210 billion after reaching $ 191 billion in FY21.
Ironically, analysts predict a 5% increase in total FY23 sales, or just $ 19 billion. A more reasonable increase of $ 50 ASP fits comfortably into these sales goals without the need for analysts to raise financial goals.
Dani Ives even promotes a scenario where Apple fails to meet the demand for the iPhone 14 Pro due to pricing and reviews pushing people towards the higher-end models. Apple could easily see the highest ASP and fail to meet sales targets due to a lack of crucial supplies.
The current iPhone 14 Pro delivery dates have been available for at least one month based on the options selected. The iPhone 14 Plus will arrive much faster.
The data suggests a disconnect with the demand for the iPhone model, not an extra demand for the iPhone 14. However, investors should understand that Apple is highly unlikely to exceed the consensus estimates of a group of analysts beyond the 80% bullish on the stock, despite the tech giant trading 23x FY23 estimates after Apple fell $ 20 from its recent highs.
The key point for investors is that the iPhone 14 launch event was by no means pivotal. Apple looks set to increase revenue only by pushing consumers towards higher-priced models by not providing the compelling tech upgrades to non-Pro models.
Investors need to understand that much of the expected ASP hikes are already built into analysts’ estimates for 5% revenue growth in fiscal 23. The stock should not be trading at a multiple far above the growth rate of sales.