Apple’s share price has risen almost 2% in early trading on Wall Street today after the company unveiling of its new iPhone models yesterday. That takes the company’s valuation to a giddy $1.09 trillion, with the market receiving the new models well despite the fact that the new iPhone XS Max that will go on sale this autumn is only an incremental upgrade on last year’s X.
It is, rather, the pricing tiers that investors have responded well to. Top of the range models including 512GB of storage and theft and loss insurance will retail at a whopping $1800.
Last year many analysts wondered whether Apple may not have overstretched in its faith that its loyal tribe of diehard iPhone users, and new buyers in developing emerging markets, would be willing to pay $1000 for a smartphone when the iPhone X was priced at a starting $999 for the basic model. However, the company was proven right as enough did to maintain unit sales at previous levels. The increased profit margins were the master stroke though, fuelling a 15% increase in revenues over the nine months leading up to the end of June. It was the reporting of those figures in July that pushed Apple’s share price to the level that took the company’s overall market capitalisation beyond $1 trillion – the first company in the world to pass that valuation milestone.
This time around, the new model will start at $1099 for the basic configurations with price rising incrementally depending on the amount of storage the unit comes with, up to a maximum of $1449 for the top 512 GB. The theft and loss insurance package adds another $299, taking the total to $1800. Outside of the USA, such as on the UK market, sales prices will be even higher. The company usually converts the dollar price into pounds here, or thereabouts, to protect itself against currency fluctuations.
What does the buyer get to justify the price hike other than increased memory and insurance? While the new iPhone XS Max sports basically the same design as the X. However, it has a 6.5 inch display, to the X’s 5.8 inches. An XS model will retain the 5.8 inch dimension and the XR, the update to last year’s iPhone 8, has a 6.1 inch display as well as an aluminium and glass body, where the 8’s was stainless steel and glass. The big USP being pushed is that the new models come with the ‘breakthrough’ A12 Bionic processor which will give them more power, responsiveness and improve battery efficiency.
The big question for investors is how far Apple can drive iPhone prices before buyers, however loyal, push back. However, the market’s positive reaction today suggests that it believes sales will hold well enough for the increased profit margins to again drive revenue and profit growth over the year ahead. The coming months will tell if both the company and analysts are proven right.
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