AAPL Apple Inc

Latest models cost $949 on average, 15% more than iPhones launched a year ago

By Tripp Mickle 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 13, 2018).

CUPERTINO, Calif. -- Apple Inc. on Wednesday unveiled its biggest and most expensive iPhone lineup ever, making a bet that larger screens can persuade millions of iPhone owners to not only upgrade to a new device but also fork over more money than they spent in past years.

A year removed from the 10th anniversary of a product that turned it into the world's most valuable company, Apple sought to enliven its flagship device with standard improvements like speedier processors and longer-lasting batteries while also touting innovative features like photo-editing tools and new haptic-touch technology.

Apple bumped up the price of its highest end phone by $100 with the introduction of the $1,099 iPhone XS Max, a plus-size, 6.5-inch version of last year's anniversary model. The new iPhone XS, priced at $999, costs the same as last year's iPhone X and features the same 5.8-inch OLED display. And the iPhone XR is a 6.1-inch device with an edge-to-edge LCD display priced at $749, splitting the difference between last year's iPhone 8 and iPhone 8 Plus prices.

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. The iPhone is Apple's most important product, accounting for about two-thirds of Apple's revenue, which totaled $53.3 billion last quarter.

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. The latest models have an average selling price of $949, 15% higher than the three phones launched a year ago.

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 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.

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

The iPhone remained the star at Wednesday's annual product showcase, which took place in the new Steve Jobs Theater at Apple's $5 billion campus. CEO Tim Cook and other executives focused solely on the iPhone and a new smartwatch, rather than introducing new versions of Mac computers, iPads or AirPod wireless headphones.

Continuing the bigger-screen trend, Apple's new smartwatch has a 30% larger display than previous models. But the highlight of the Series 4 watch, starting at $399, is a new electrical sensor that gives the device electrocardiogram, or ECG, capabilities to measure a heart's electrical current in 30 seconds. It is the first of the company's smartwatches to win Food and Drug Administration clearance, showing the notoriously secretive company is willing to work with regulators as it pushes into the health industry.

The new feature could help Apple elbow into the cardiac-monitoring market, valued at $1.4 billion, according to iRhythm Technologies Inc., which has an ECG product. Apple could reach a small percentage of that market while also bringing in some of the 15 million adults over 65 who have irregular heartbeats and don't know it.

"I don't see this as a game changer for them," said Gene Mannheimer, an analyst at Dougherty & Co. who focuses on digital health.

Apple is aiming to offset stagnant unit sales of iPhones with not only new products like the smartwatch but also 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.

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 rose 37% to 231 million units. Few expect it to repeat that feat this year.

The company this fiscal year will ship an estimated 151 million units of its three flagship models, flat with the two flagship models it shipped in fiscal 2015, according to estimates by 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.

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

(END) Dow Jones Newswires

September 13, 2018 02:47 ET (06:47 GMT)

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