AAPL Apple Inc

By Tripp Mickle 

CUPERTINO, Calif. -- Apple Inc. on Wednesday unveiled its largest smartwatch screen ever, setting the tone early for a product showcase where larger displays are expected to assume outsize importance as the company tries to persuade millions of customers to buy its newest gadgets.

The Apple Watch Series 4 features a near edge-to-edge display that the company said makes the screen 30% larger than last year's model. It also offers a new user interface with different looking icons and a reengineered crown that offers haptic feedback.

The back of the new model is made of black ceramic and sapphire crystal, allowing radio waves to pass through the front and back to improve cellular reception, Apple Chief Operating Officer Jeff Williams said.

The announcement kicked off the company's annual product showcase, an event that is expected to be punctuated by the unveiling of three new iPhones with the largest displays in the device's history.

Apple is expected to announce two new models with its largest iPhone screens: a lower-priced device with a 6.1-inch LCD display and a pricier one with a 6.5-inch display using more advanced OLED technology, according to people familiar with the plans. The company also will reveal an updated version of its iPhone X, which has a 5.8-inch OLED screen, they said.

The iPhone, accounting for about two-thirds of Apple's total revenue, remains its most important product. The new models are critical to maintaining sales in a contracting smartphone market where people hold on to devices longer, and growth of high-price handsets has stagnated.

Those challenges have clouded Apple's future. Though it became the first U.S. company to be valued at more than $1 trillion last month, tech rival Amazon.com Inc. more recently hit that milestone and is threatening to unseat the iPhone maker as the world's most valuable company.

To maintain its corporate perch, Apple must squeeze more money out of its existing customers. An estimated 254 million consumers use iPhones that are more than three years old and 486 million use iPhones that are more than two years old, according to Piper Jaffray, an asset-management firm.

Apple is betting it can persuade enough customers to buy a new device to improve on the 17% increase in iPhone revenue to $164.66 billion that analysts predict it will deliver in the fiscal year ending in September, as the iPhone X's nearly $1,000 price tag offset flat unit sales.

It also is banking on them paying more. The new iPhones are likely to start at $800 for the LCD model, $900 for the iPhone X update and $1,000 for 6.5-inch OLED model, up from last year's starting prices of about $700, $800 and $1,000, according to Nomura Group. It predicts average iPhone selling prices will rise by $20.

"The iPhone X was too expensive so there's an abnormally large portion of the base with older devices," said Tim Arcuri, an analyst with investment bank UBS. "This is a big phone launch, so the units are going to sell better than people think."

When Apple last introduced a major increase in display size with the iPhone 6 Plus in 2014, annual sales of the device the subsequent fiscal year soared 52% to $155.04 billion and shipments spiked 37% to 231 million units. Few expect it to repeat that feat this year.

Apple is working harder than ever to generate unit sales comparable to its peak in fiscal 2015. The company last year shipped an estimated 151 million units of its three flagship models, flat with the two flagship models it shipped in fiscal 2015, according to Strategy Analytics, a technology research firm. Meanwhile, the complexity of making three models has reduced its iPhone operating margins to 30% this year from about 35% in 2015, the firm said.

"Apple is having to run harder just to stand still," said Neil Mawston of Strategy Analytics. "It's the classic sign of maturity."

Apple is aiming to offset stagnant unit sales of iPhones with rising revenue from a fast-growing services business that includes app-store sales, streaming-music subscriptions and mobile payments. The services business jumped 26% to $27.2 billion over Apple's first three fiscal quarters through June.

The bigger screens are expected to help that business line, as smartphone users with 6-inch screens or larger typically use twice as many apps as those with 5.5-inch screens and are twice as likely to watch video daily, according to Kantar Worldpanel.

The other growth areas for the company are its so-called wearables, which include smartwatches and wireless headphones. They are the primary contributors to a business unit that has jumped 37% to $13.18 billion in the first three fiscal quarters through June.

Apple is launching the products amid rising trade uncertainty. The company, which assembles the vast majority of its devices in China, last week said that proposed U.S. tariffs on $200 billion of Chinese goods would affect its watch and AirPods, possibly leading to higher consumer prices.

President Trump responded to the company's claims by renewing calls for Apple to shift production to the U.S. and out of China, saying that would be the quickest solution to potential price increases.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

September 12, 2018 13:40 ET (17:40 GMT)

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