As per usual, Apple (NASDAQ: AAPL) is down sharply from highs near $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 Metaplatforms (META). My investment thesis remains bearish on the headline with another failed break of strong resistance at recent highs.
Mixed request message for iPhone 14
After incorrectly predicting a price hike for iPhone 14 models, especially Pro models, influential analyst Ming-Chi Kuo is now claiming a production shift to iPhone Pro models. Just 12 days after the Far Out event that launched the new iPhone, Apple has reportedly completely misdiagnosed each model’s demand for shifting production already.
Apple would certainly benefit from a consumer purchasing the more expensive Pro models due to price differences. The big question is whether consumers are actually buying the most expensive items, with an economy potentially in recession and certainly facing higher inflation.
The actual starting price breakdown for the different 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 the iPhone 14 Pro models because of the limited value of the 14 Plus. The 14 Pro is only $100 more than the Plus. Forbes even argues for buying a refurbished iPhone 13 Pro Max at a discount compared to the iPhone 14 Plus.
The data doesn’t really question whether consumers are moving to the Pro versions, but it does question the volumes. A consumer wanting a big-screen smartphone could forgo the upgrade for another year when the best option starts at $1,000 for the base version.
Other reviews actually suggest that consumers should buy a new iPhone 13 for just $699, which would cut into the money paid to Apple this cycle. The iPhone 14 models may technically drive higher average selling prices due to the change in models purchased and the elimination of the mini, but the consumer has every reason to seek out a cheaper option.
The key to launching the iPhone 12 was the 5G chip. All of the other upgrades to the iPhone 13 and now 14 models are minor improvements that consumers can take or leave without much indigestion. However, a consumer does not want a new phone without a 5G chip that would leave the smartphone significantly behind in network speed capabilities for the next couple of years. Very few consumers actually care about a better camera, a better processor, or an emergency SOS feature.
The latest news of a camera flaw in the iPhone 14 Pro Max could reach short-term volumes. The Guardian reported that owners saw the camera fail when using popular apps like Instagram and TikTok.
Other than an unexpected persistent issue, Apple will no doubt fix any camera-related issue in a relatively short time. The tech giant won’t see any long-term sales impact, but this camera issue could impact sales for the holiday season as consumers try to shift their purchases to the Pro models.
What investors always miss
Investors should understand that analysts are uniformly bullish on Apple and that 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 estimates that iPhone 14 demand matches or slightly exceeds iPhone 13 sales at around 220 million per year. As noted above, the only way for Apple to increase sales is through higher ASPs by moving to more expensive models, with the iPhone 14 pricing the same in the US as the 13 model and volumes starting at the same level.
With a $100 higher ASP, Apple could boost FY23 sales by $22 billion. This best-case scenario would only boost iPhone sales by 10% from the FY22 level, which is expected to approach $210 billion after hitting $191 billion in FY21.
Ironically, analysts expect total FY23 sales to grow 5%, or just $19 billion. A more reasonable $50 ASP boost falls comfortably within these sales targets without analysts needing to increase the financial targets.
Dani Ives even promotes a scenario in which Apple fails to meet the demand for the iPhone 14 Pro due to prices and reviews pushing people towards higher-end models. Apple could easily see higher ASP and miss sales targets due to a lack of crucial supplies.
Current iPhone 14 Pro ship dates have been available for at least a month depending on options selected. The iPhone 14 Plus will arrive much faster.
The data suggests a disconnect with iPhone model-related demand, not additional demand for the iPhone 14. Either way, investors should understand that Apple is highly unlikely to exceed estimates group of analysts consensus more than 80% bullish on the stock, despite tech giant trading at 23x FY23 estimates after Apple fell $20 from recent highs .
The main conclusion from investors is that the iPhone 14 launch event was not at all decisive. Apple only seems willing to increase revenue by pushing consumers to higher priced models by not providing the compelling tech upgrades to non-Pro models.
Investors should understand that much of the expected ASP increases are already priced into analysts’ estimates for 5% revenue growth in FY23. The stock is not expected to trade at a multiple well above the sales growth rate.
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