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 11, 2019).
CUPERTINO, Calif. -- Apple Inc. revealed a trio of upgraded
iPhones, including a lower-priced model, and detailed its plans to
enter the increasingly competitive video-streaming market with an
offering that is cheaper than rivals.
The announcements came Tuesday at Apple's marquee product
showcase, where this year the tech giant sought to balance its
penchant for premium products with an emphasis on value. Apple is
looking to offset slowing hardware sales by selling newer services,
such as TV streaming, videogames and news -- and it is being
aggressive on pricing to gain a foothold in those cutthroat
industries.
Apple set monthly prices for its TV+ video-streaming service and
Arcade videogame-streaming service at $4.99, largely undercutting
rivals. TV+ comes free for a year with the purchase of a new
iPhone, iPad or Mac, a perk that could get more people to buy a new
device or upgrade. Apple can afford to discount the services
because of the profits it earns on hardware and its distribution
edge over competitors, with more than 1.4 billion devices in use
world-wide.
The company is making just a handful of shows available for the
TV+ debut in November, so the service will be a tough sell against
the deeper programming catalogs offered by streaming rivals Netflix
Inc. and Walt Disney Co. But at $4.99 a month, TV+ is much cheaper
than Netflix's $12.99 monthly standard option and Disney's $6.99
monthly fee for a service expected to arrive in November.
"Clearly, they want their customers to use it and not feel
forced to choose between it and Netflix or Hulu," said Carolina
Milanesi, an analyst with Creative Strategies. She added that Apple
could offer lower prices on services without affecting its
historical brand position in hardware as a luxury-device maker.
Netflix doesn't see the low prices as a threat, because they
make it more likely Netflix customers won't be forced into a choice
if they want to add another streaming service, an executive
familiar with the company's strategy said.
At Tuesday's event -- held in the Steve Jobs Theater, the
on-campus auditorium named after Apple's co-founder -- Apple
lavished much of its time on the flagship device that Mr. Jobs
helped create a dozen years ago. The new but familiar-looking
iPhones, now under the iPhone 11 brand, blended standard updates
such as longer-lasting batteries and new colors with more
innovative features such as a night mode for low-light photos and
the ability to shoot video by holding down the camera button.
Apple lowered the price of its most popular model by $50,
countering three consecutive years of price increases. The iPhone
11, a 6.1-inch device that updates last year's XR model, will start
at $699 and include a dual-rear camera. The iPhone 11 Pro and 11
Pro Max, with triple-rear cameras, play to the premium market with
prices of $999 and $1,099.
Apple also introduced an updated smartwatch with improved power
that allows it to display time throughout the day, and cut the
price of an earlier model to its lowest point yet.
The company didn't reveal any surprise new devices, delivering
instead the type of incremental hardware improvements that have
defined its events in recent years and stirred up questions about
Apple's innovation prowess under Chief Executive Tim Cook. Mr.
Jobs's successor has transformed Apple into one of the world's most
profitable companies but hasn't delivered a megahit product on par
with the iPhone, which arrived in 2007, or the iPad, first released
in 2010, the year before Mr. Cook took over.
The Apple Watch made its debut five years ago and has largely
been a success, as have the more recent AirPods wireless earbuds,
but not enough to shore up falling iPhone sales. Mr. Cook has since
pushed Apple to leverage its hardware success to sell more software
and services.
TV+ will make its debut Nov. 1 with shows such as "The Morning
Show," a drama about a morning talk show starring Reese Witherspoon
and Jennifer Aniston. Other shows will be added in the months
afterward, Mr. Cook said.
The watch and new subscription services are central to Apple's
efforts to diversify its business as the iPhone falters. Its
customers are holding on to current iPhones longer and bristling at
prices of new models that average nearly $1,000. Those struggles
are particularly acute in China, where Apple is battling increased
competition, trade tensions and a decelerating economy.
Apple also made the Apple Watch a better value, reducing the
price of the Series 3 model about 30% to $199 and maintaining a
price of $399 on its newest model, the Series 5.
The smartwatch prices showed Apple is willing to eat the cost of
tariffs rather than pass them on to consumers. The Apple Watch was
among its first products subjected to the 15% tariffs the Trump
administration introduced on $111 billion in Chinese-made goods
this month.
Apple can absorb the extra costs of tariffs without it affecting
margins because memory prices have fallen in recent years,
providing a cushion, analysts said.
To sustain growth, Apple must squeeze more money out of existing
customers by leveraging past hardware success to sell newer
products and services. It has over 900 million iPhone users
world-wide, but only a fraction own an Apple Watch or pay for the
company's streaming-music service. It has rolled out several new
accessories and services to deepen its reach into users' wallets,
including its AirPods, a credit card and a videogame service called
Arcade.
The emphasis on services and newer products has coincided with
several high-profile executive departures, including design chief
Jony Ive, who will leave this year to start his own design firm. It
has also revived questions about the company's ability to offer the
type of hardware innovations that turned the iPhone into one of the
world's best-selling products.
"Apple isn't growing like they were before," said Mike Frazier,
president of Bedell Frazier Investment Counselling, a Walnut Creek,
Calif.-based firm with about $500 million under management that
counted Apple as its largest holding before scaling back its
investment this year. "They're a victim of their own success."
Apple needs to encourage enough iPhone upgrades to avoid
repeating the smartphone sales slump that dogged the company last
year, forcing it to slash its revenue forecast in January for the
first time in more than 15 years. World-wide sales of the company's
smartphones fell 15% to $109.02 billion for the three quarters
ended in June. Shipments have declined an estimated 17% over that
period, according to analysts, outpacing the smartphone industry's
projected decline of 2% this year.
Wall Street has already begun to look ahead to next year's
models that are expected to feature 5G, a faster fifth generation
of wireless technology that will result in speedier smartphones.
Apple will be lagging behind rivals such as Huawei Technologies Co.
and Samsung Electronics Co. in bringing that technology to
market.
"They will lose market share in China in the premium space
without 5G because the country is going to ensure 5G is relevant,"
said Patrick Moorhead, principal analyst at Moor Insights &
Strategy. "That will trigger adoption of Huawei, Xiaomi and others
and hurt Apple."
Dow Jones & Co., publisher of The Wall Street Journal, has a
commercial agreement to supply news through Apple services.
--Amol Sharma contributed to this article.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
September 11, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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