David Paul Morris/Bloomberg
After a fairly straightforward iPhone launch event, Apple Inc.’s approach to the iPhone XR sparked some debate Thursday morning among analysts.
The company largely won praise for its new iPhone XS Max, a 6.5-inch OLED phone that’s expected to both satisfy consumer appetite for large screens and help Apple AAPL, +2.42% financially, thanks to its starting price of $1,099. But the jury appears to be out on the $999 iPhone XS, which isn’t much of an upgrade over last year’s iPhone X, as well as the iPhone XR, which might be too good for its $749 price tag.
See more: Why would anybody buy the iPhone XS?
Goldman Sachs analyst Rod Hall lowered his expectations for Apple’s average selling prices on Wednesday, writing that while pricing could benefit from the fact that the company cut the low-end iPhone SE and iPhone 6 from its lineup, the iPhone XR was priced lower than he expected.
“The reduction in pricing expectation for the high volume iPhone XR in our model more than offsets these positive mix changes,” wrote Hall, who rates the stock at neutral with a $240 target price.
Bernstein analyst Toni Sacconaghi wrote that one of his main questions after the event was: “Will the new iPhone XR cannibalize iPhone XS sales?”
Sacconaghi said that the iPhone XR has a pretty comparable feature set to the iPhone XS—it lacks a dual camera or 3D Touch but packs more battery life and boasts a slightly larger screen—all while costing $250 less at base prices.
“These issues will likely be exacerbated by the fact that the name ‘XR’ might not inherently suggest a lower-end product than ‘XS,’” he said.
While Goldman’s Hall argued that iPhone XR pricing would overshadow positive mix shifts elsewhere, Sacconaghi doesn’t think that the low price will have much impact, however. His model “calculates that the negative impact to iPhone ASPs would still be more than wholly offset by pricing moves elsewhere, i.e. higher-than-expected base prices for the XS and XS Max, the 512 GB storage option, and the removal of the iPhone SE.”
Sacconaghi rates the stock at market perform with a $200 target.
Apple’s release strategy for the three phones could change things, however. In the past, Apple has started shipping its fanciest phones a bit later than its cheaper ones, presumably owing to production issues. But this year, the iPhone XS and XS Max will be available for preorder Friday, and will begin shipping a week later. The XR won’t begin shipping until Oct. 26.
“For the first time, the most expensive iPhones are available 5 weeks before cheaper iPhones, which is a release windowing strategy the movie industry has used for decades to maximize total revenue,” wrote Needham’s Laura Martin, who rates the stock a buy and upped her price target to $260 from $220 after the event.
Read all the details of Apple’s iPhone event on the MarketWatch live blog
Morgan Stanley analyst Katy Huberty, however, said the iPhone XR launch date was something she’d consider “on the negative side” as it’s later than she expected, but she figures that most early adopters would be going for the iPhone XS Max anyway. She was upbeat in general about what she heard from Apple on Wednesday, writing that the new lineup “is likely to dispel the fear” that iPhone revenue will be flat in the next fiscal year.
In particular, Huberty likes the iPhone XS Max pricing and the new storage option, which she thinks means an “even greater uplift to average pricing” than she’s previously models. Huberty also was intrigued by the company’s introduction of dual-Sim capabilities, which she thinks could be “a potential new demand driver, especially in China.” The typical wireless customer in China has more than one SIM card, she said, in order to have separate WeChat accounts for business and personal messaging as well as separate data plans.
More than half of iPhones in China are either iPhone 6S devices or even older, suggesting a “more aged installed base” that could be especially interested in upgrades, Huberty wrote. She rates the stock at overweight and bumped her price target up to $247 from $245.
At least 13 analysts raised their Apple price targets after the event, according to FactSet. Of the 39 analyst tracked by the service that cover Apple, 24 have buy ratings, 14 have hold ratings, and one has a sell rating. The average target price is $228.05, about equal to current levels.
Apple shares were trading about 2% higher in Wednesday’s session, and are up 41% over the past 12 months as the Dow Jones Industrial Average DJIA, +0.57% — which counts Apple as a component — has gained 18%.
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