Apple Updates Key iPhone Line to Try to Reignite Sales Growth

  • Products unlikely to change lackluster trends, analysts say
  • Upgrade program in China may help tackle cheaper rivals

Everything You Need to Know from the Apple Event

Apple Inc. rolled out updated products and new features Wednesday that mostly relied on an old strategy. The most-valuable technology company is targeting pent-up appetite for new iPhones to reignite sales growth amid mounting investor concern that its pace of innovation is slowing.

The iPhone 7 line includes camera upgrades, a faster processor, longer battery life and a new water and dust-resistant design, the company said during an event at San Francisco’s Bill Graham Civic Auditorium. Apple also ditched headphone jacks to make room for other features and the company showed off new $159 headphones called AirPods that connect wirelessly to the new iPhones.

“This is the best iPhone we’ve ever created,” Chief Executive Officer Tim Cook told an audience of reporters and Apple employees.

First Look at the New iPhone 7 and iPhone 7 Plus

Others weren’t so enthused and Apple shares ended up less than 1 percent in Wednesday trading, leaving the stock up 3 percent so far this year. The Nasdaq Composite index has gained 5.5 percent in the same period.

“In the past they’ve had a brand new user experience, and we haven’t seen that today,” said Gartner Inc. analyst Brian Blau. “I don’t think it’s going to change people’s opinions of smartphones. It’s not going to jack up interest but it’s not going to reduce it either.”

Apple, based in Cupertino, California, also announced a new water-resistant Watch with GPS tracking, a faster processor and brighter screen, along with an iPhone payments service for Japan, updated work software and the addition of a Nintendo Co. Super Mario mobile game to its App Store.

The new Apple Watch 2. Photographer: David Paul Morris/Bloomberg

The new Apple Watch 2.

Photographer: David Paul Morris/Bloomberg

Apple’s previous CEO Steve Jobs introduced the iPod, iPad and original iPhone at similar events in the past, helping revenue and profit surge. Yet sales this fiscal year are forecast to decline for the first time since 2001, prompting questions among some investors and analysts about Cook’s ability to deliver such innovations. He’s trying to increase sales of software and services, while greater investment in research and development has yet to yield new product lines such as an Apple car or virtual reality offering.

Muted Expectations

Expectations for the iPhone 7 had been muted, with anticipation instead mounting for the model to be introduced in 2017, when Apple celebrates the device’s 10th anniversary. Apple’s smartphone market share is likely to slip to 13.9 percent this year, compared with 15.8 percent in 2015 and an estimated 14.2 percent in 2020, research firm IDC estimated before Wednesday’s event. It also forecast slower growth in overall smartphone sales as consumers upgrade less frequently.

The latest iPhone is similar in design and size to its predecessor, the iPhone 6S. The larger 7 Plus handset has a back-facing dual camera which allows for crisper images, particularly in low light. It also comes with a new pressure-sensitive Home button that provides a vibrating sensation in response to button presses instead of an actual physical click.

QuickTake Apple

The smaller of two models, the iPhone 7, will cost $649 and the larger 7 Plus will cost $769. Both are available for pre-order on Sept. 9, and come in silver, gold, rose gold colors and two new black finishes.

“There’s a big enough pool of iPhone 6 users waiting for an upgrade and there was enough new technology in there to make us comfortable about growth heading into next year,” said Gene Munster, a Piper Jaffray analyst who has an overweight rating on Apple stock.

The dual cameras on the Apple iPhone 7 Plus. Photographer: David Paul Morris/Bloomberg

The dual cameras on the Apple iPhone 7 Plus.

Photographer: David Paul Morris/Bloomberg

Apple’s failure to completely overhaul the design, as it has previously done every two years, shouldn’t hurt sales, said Lauren Guenveur, an analyst at Kantar Worldpanel.

“Most people upgrade because they’re looking for better battery life, better storage capacity, and a faster processor and that’s everything that they highlighted today,” she said.

China Upgrade

China has been a drag on Apple’s performance this year as local rivals introduce cheaper handsets with similar functionality. 

Apple said Wednesday that its iPhone Upgrade subscription program -- where users pay a monthly fee to get a new phone each year -- will be extended to Asia’s largest economy. That could help it boost future revenue in China, where the third-quarter sales decline was bigger than the revenue drop in the Americas and Europe combined.

“To make inroads with the next 500 million Chinese consumers, they need to find a way of making their devices affordable without compromising on their premium brand -- this might help them do that,” Julie Ask, a Forrester Research analyst said. The program, introduced in the U.S. last year, will also be extended to the U.K.

Tough Cell

The new Apple Watch may disappoint customers who had been hoping for a cellular chip that would have given it mobile network connectivity and un-tethered it from the iPhone. Apple had been in talks with mobile phone carriers earlier this year to introduce such a version, but the plans hit hurdles on concern about reduced battery life, people familiar with the discussions said last month. Samsung Electronics Co. unveiled its own smartwatch with cellular connectivity last week.

The model unveiled on Wednesday -- dubbed the Apple Watch Series 2 -- targets fitness fanatics. Waterproofing down to 50 meters has allowed Apple to build swim tracking into the device, while GPS means joggers can plot their runs without carrying an iPhone. Apple also teamed up with Nike Inc. to release a version the two companies call the Apple Watch Nike+. The partnership will let Apple sell products with the world’s largest sport brand’s well-oiled marketing machine and sales network.

First Look at the Series 2 Apple Watch

When the Apple Watch first reached stores in April 2015, some hoped it would become a new revenue source to match the iPhone and early iPad sales. Apple still doesn’t break out sales of the smartwatch, lumping it with "Other Products" in financial reports. That segment generated $2.2 billion of revenue in the three months through June -- less than half the sales from iPads and an even smaller fraction of the $24 billion in iPhone sales that quarter. IDC estimated Apple shipped 1.6 million Watches in that period, down 55 percent from the same period a year earlier.

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