Apple is banking on upscale buyers to make the latest iPhone a hit

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The latest iPhone hits stores on Friday, and Apple Inc. is counting on well-heeled buyers to make the device a hit in a year of inflation and shaky tech spending.

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The iPhone 14 range reserves the best features for the high-end Pro models, which cost at least $1,000. And based on pre-order data, the strategy is already working with consumers who have made the most expensive new iPhone the most popular version.

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Though overall spending on mobile devices and computing is slowing this year, there’s still an appetite for top-of-the-line smartphones — Apple’s forte. That’s allowed the company to keep production steady at a time when much of the industry is cutting back on plans.

“Data continues to point to robust demand for the iPhone 14 Pro and Pro Max, which could be a material positive for both the mix and margins,” Evercore ISI analyst Amit Daryanani said in a report this week .

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The iPhone 14 lineup was unveiled earlier this month alongside new Apple Watches and AirPods. The company didn’t hike prices, a surprise to analysts who thought inflationary pressures would force the move. But Apple is still trying to upsell to consumers more than ever.

The standard iPhone, which starts at $799, doesn’t even run on Apple’s latest processor, the A16. Instead it uses the same A15 chip as last year, with the A16 making its way into the Pro models. The Pro phones are also getting significant camera improvements and a new user interface called Dynamic Island.

That has given users less reason to upgrade to a base iPhone 14, but a great incentive to pay a little more for the Pro. A barrage of carrier promotions and trade-in offers can also entice consumers to buy a glitzier model.

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Apple also reshuffled its display configurations this year. Gone is the mini version of the iPhone. Instead, the company is betting that consumers will want more screen real estate. The non-Pro iPhone 14 will be available in a 6.1-inch model and a 6.7-inch Plus version, which won’t be available until October 7th.

According to a report by KGI Securities, pre-order data suggests the iPhone 14 Pro Max is more in demand than the same model last year, which is part of the upward shift.

The question now is whether that momentum is strong enough for Apple to weather a broader slump. According to the market research company IDC, the global smartphone market is expected to decline by 3.5 percent to 1.31 billion units this year.

In China, both a manufacturing hub for Apple and a key market, smartphone sales have plummeted this year. However, according to Evercore ISI’s Daryanani, Apple’s shipments are up five percent, compared to an overall decline of 23 percent.

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“Apple continues to gain significant market share in China and we expect the market share gains to continue,” he said.

A successful iPhone 14 launch could help ease investors’ jitters after a month’s roller coaster ride. The stock has lashed back and forth between gains and losses over the past few trading sessions, with shares suffering their worst daily decline since 2020 on Tuesday. A higher-than-expected inflation report and concerns about rate hikes have hit tech stocks particularly hard.

Apple shares are down 16 percent for the year, although that’s slightly better than the S&P 500, which is down 19 percent. The tech-heavy Nasdaq Composite Index is down 27 percent.

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Analysts expect Apple sales to rise 6 percent this quarter, slowing from the 29 percent gain a year ago – when pandemic-related consumers were still snapping at technology. The iPhone 14 launches a few weeks earlier in the year than usual, which should help support Apple’s sales in the September quarter. The busiest period of the company’s year is usually the December quarter, which is boosted by holiday spending. According to analyst estimates, sales should increase by three percent during this period.

The iPhone is unrivaled in its importance among Apple’s products. It accounts for about half of the company’s total sales and helps boost sales of other devices, including the Apple Watch and AirPods. Both categories have been revamped during the recent launch, further underscoring the company’s high-end focus.

The company unveiled an update to the AirPods Pro and a first-ever Apple Watch Ultra model that – like the Pro iPhones – is said to be both bigger and better. And of course it costs a little more.

Bloomberg.com