Has Apple Flubbed Its September Rollout? – Seeking Alpha

Rethink Technology business briefs for September 22, 2017.

Reviews range from tepid to scathing

Source: Apple

Except from the Apple (NASDAQ:AAPL) fan sites, Apple’s new product introductions rarely receive unambivalent praise. The reader will recall last year’s iPhone 7 roll-out, which was preceded by endless criticisms that the phone “lacked innovation.”

This year seems a little bit worse than normal, however, and partly Apple itself is to blame. Apple has led the product roll-out with iPhone 8, a phone that everyone knows is Apple’s second best.

Apple set itself up to get worked over on account of this, and it has, at the hands of Geoffrey A. Fowler of the WSJ, who declared that it was “Not the Upgrade You’re Looking For”. Fowler even expressed reservations about the glass back.

As is so often the case in these reviews, there’s little cognizance of the technological innovation packed into the new iPhone. The A11 Bionic processor in the iPhone 8 and 8 Plus, as well as iPhone X, is nothing short of phenomenal, but reviewers mostly ignore it.

Likewise, reviews of Apple TV 4K have been only mildly favorable, such as this one from Tom’s Guide, which decries the high price of the device. Lacking anything else to criticize, one can almost always criticize the price of an Apple product.

But reviewers’ vitriol has mostly been reserved for Apple Watch Series 3 with LTE. Reviewers have declared over and over that it “just doesn’t work”. Lauren Goode wrote in The Verge:

An Apple Watch with built-in cellular capabilities, should, in theory, prompt existential questions about what a smartwatch can be. . . But in order for that philosophizing to occur, something else has to happen first: the thing has to work.

And when it does work, battery life appears to be not very good like a few hours on LTE. Apple has of course acknowledged the connectivity problems, and claims that it’s related to the way Watch S3 handles transitions between cellular and Wi-Fi. Even CEO Tim Cook has offered assurances that the problem will be fixed with a software patch. But Apple has squandered its opportunity to make a good first impression.

iPhone 8 scores points in testing and teardowns

The news has not been all bad. When we move from relatively subjective reviews to more objective testing, the things get much better. DxOMark, which tests standalone cameras, optics, and smartphone cameras, has declared the iPhone 8 Plus “the best smartphone camera we’ve ever tested.” For years, DxOMark has found iPhone wanting compared to the best Android phones, but it found significant improvements in iPhone 8 Plus. Much of that was afforded by improvements to the Image Sensor Processor in the A11 as well as improvements to software.

And while the glass back of the iPhone 8 may be more prone to fracture, it is at least stiffer than the aluminum of the iPhone 7. In a durability test video, the iPhone 8 simply refused to bend.

And the iFixit teardown of the iPhone 8 has revealed an upgraded Qualcomm (NASDAQ:QCOM) X16 modem. It’s capable of 1 Gigabit/sec download speeds compared to the iPhone 7 Qualcomm X12 modem which topped out at 0.6 Gigabit/sec.

Investor Takeaways

The negative reviews, the LTE Watch stumble, the delayed release of iPhone X, and the seemingly slow sales of iPhone 8 have coalesced into a Perfect Storm for Apple’s stock. It has fallen more than 6% since September 12.

Most of this is an overreaction. iPhone 8 was never going to sell as many units as a normal iPhone flagship. To assume that iPhone 8 would provide the normal “S” year revenue with iPhone X revenue on top of that was probably an unrealistic “supercycle” fantasy.

iPhone 8, 8 Plus, and X will undoubtedly split the revenue that would normally be attributable to the flagship models. Apple may even get a sales boost out of the X, but it’s too early to tell. Almost certainly, September quarter iPhone sales will suffer by virtue of the lack of X. But how serious an impact isn’t clear. Analysts may have tended to infer too much from the lack of the normal sell-out for iPhone 8. Apple may simply have done a better job of meeting demand.

It’s generally assumed, and I agree, that iPhone X will be in short supply in the December quarter, and this may hurt unit sales. But Apple is addressing a very broad range of price points, starting with iPhone SE and moving through 6s, 7, 8 and X. Some of the slack may be taken up in models such as the iPhone 7, which saw a price drop following the September 12 event.

I’ve always expected that iPhone X would be a very high priced, limited availability commemorative of the iPhone’s tenth anniversary, and that’s basically what it has turned out to be. My only concern with X is that Apple may not have made it expensive enough to avoid cannibalizing sales of iPhone 8. Eventually, but probably not until calendar 2018 Q1, Apple will achieve supply/demand balance for iPhone X.

It’s a safe bet that Apple will resolve the problems with LTE Watch. LTE Watch is a marvelous device that advances personal communications and heralds the future of cellular connected wearables of all types. I consider LTE Watch to be one of Apple’s most important products, and I’m sure Apple does too. Apple will pull out all the stops to make this right.

Despite the fallout from the September 12 event, I consider it to have been very positive for Apple. Apple continues to lead the industry in ARM mobile processor design. iOS 11 takes better advantage of the processing power of the A11 to deliver useful features to customers. Apple has taken the plunge in wireless charging and OLED screens. And Apple delivered something of a breakthrough with the Apple Watch Series 3 with LTE.

As long as Apple continues to lead technologically, as long as it continues to package that technology into products that people want, it will continue to grow. The latest pullback in the stock causes me no second thoughts about Apple whatsoever. I remain long Apple and recommend it as a buy.

Disclosure: I am/we are long AAPL, QCOM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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