Are Apple's New iPhones Enough?

Apple (NASDAQ: AAPL  ) took the stage this morning and unveiled two new iPhones. Unfortunately, there were no surprises. Everything was as expected. Still, the iPhone line has an undeniably better value proposition after the new releases.

iPhone 5C. Source: Apple.

iPhone 5S
Apple's new iPhone 5S may have the same form factor as its predecessor, but the smartphone still deserves some respect. Particularly impressive is the phone's A7 chip and fingerprint sensor.

A7 chip. If you're an iPhone 5 owner, the technology in your pocket is already getting old. The new A7 chip in the iPhone 5S "gives you CPU and graphics performance up to 2x faster than the A6 chip," asserts Apple's website. "Even more impressive, A7 makes iPhone 5S the first 64-bit smartphone in the world -- that's desktop-class architecture in a superslim phone."

To illustrate, Apple showed this slide at this morning's product launch.

Phil Schiller speaking at the September 10 Apple iPhone event. Source: The Verge.

Talk about exponential growth...

During the event, a preview of Infinity Blade III on the iPhone 5S ran effortlessly, with "nary a lag of stutter," according to The Verge.

Touch ID on iPhone 5s. Source: Apple.

Touch ID. According to Apple, only about half of smartphone users don't bother to set up a passcode to unlock their iPhones. That's certainly going to change for iPhone 5S users. Apple's new fingerprint sensor allows iPhone 5S users to unlock the screen by touching the home button.

The sensor, referred to as Touch ID, even scans your sub-epidermal skin layers. It will read your fingerprint in any orientation and the more you use it, the more it will improve.

Unlocking the iPhone is a task that users repeat dozens and dozens of times a day, if not more. The feature serves as a clear way to differentiate Apple's new high-end iPhone from the rest of the iPhone family.

iPhone 5c. Source: Apple.

iPhone 5C
The iPhone 5C is available in five different colors: white, pink, yellow, blue, and green. Most notably (and rightly so), it comes with a less expensive price tag than the 5S. The 5C carries an entry price of $99 with a two-year contract, compared to $199 for the 5S.

With the slower A6 chip, also found in the iPhone 5, it made sense for Apple to cut the iPhone 5 from the product line. The new lower-cost iPhone even beats the iPhone 5 on battery performance, with 10 hours of talk and Internet time versus eight hours on the iPhone 5.

A clear hierarchy
In removing the iPhone 5 and replacing it with the 5C, Apple has clearly identified a hierarchy among its iPhone product line. The iPhone 4S, at $0 with a two-year contract, is available in black and white, with a smaller display. The plastic-backed 5C is available in five different colors. Then there's the Touch ID-equipped 5S, available in silver, space gray, and gold. In line with their pricing, the 5S has the best chip (A7) and the 4S has the worst (A5), with the 5C right smack in the middle (A6).

Source: Apple website.

Notably, Apple's premium-priced iPhone and its mid-priced iPhone, for the first time, are both new smartphones. The combined value proposition for the two phones likely has a broader audience than it would if the mid-priced iPhone were an older iPhone 5. With the iPhone 5 gone, Apple can attract consumers unwilling to pay up for a 5S with a new, mid-priced 5C that has its own uniqueness.

Are the new iPhones game changers?
Even with a clearer hierarchy combined with fresh new designs in both its premium- and mid-priced iPhones, will the value proposition attract enough new customers to positively impact Apple's bottom line? After all, some analysts expected an unsubsidized price tag as low as $400 for the iPhone 5C -- $549 is considerably higher.

Is $549 a low-enough price point to attract a large number of new customers in the important Chinese market?

With no surprises and a more expensive iPhone 5C than many analysts anticipated, we would be getting ahead of ourselves if we expect Apple's revenue and earnings to soar on iPhone sales alone over the next year.

Fortunately, Apple's conservative valuation at today's prices doesn't call for meaningful EPS growth. On that note, a solid, fresh value proposition without any groundbreaking surprises or impressively low prices is likely enough to continue to reward Apple investors over the long haul.

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Read/Post Comments (11) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 11, 2013, at 8:01 AM, jdmeck wrote:

    This will be big again. The new tech is only the beginning. It will find it's way into iPad and all the wearable tech they will introduce. Short Apple at your own loss.

  • Report this Comment On September 11, 2013, at 10:14 AM, Hoptopia wrote:

    Blah blah whatever, they make great products and have a ton of money in the bank.

  • Report this Comment On September 11, 2013, at 12:08 PM, Mathman6577 wrote:

    The analysts thought the 5C was too expensive. What does Apple need to do? Release a $10 phone?

  • Report this Comment On September 11, 2013, at 12:42 PM, tempest669 wrote:

    Let me preface this by saying I am an iphone user and AAPL owner. Iphone 5S and 5C are a big disingenuous as far as a refresh. 5C is basically an Iphone 5 with a plastic shell and gives profit margin a huge boost. However, it still fails to reach most emerging market price levels, and it's a bit of a crappy trick to squeeze more margin out of their customers.

    5S still supports 1080p recording, but the device itself cannot play it back in that definition. Why? Because that would squeeze margins. A7 64-bit processor? Why? Phones don't yet support 4GB memory needed to even use 64-bit, let alone the additional costs associated with developing 64-bit apps. Windows OS has had 64-bit available for nearly 10 years and is still limited by software available to use it, with exception of graphics intensive software. By the time 64-bit apps is necessary, a customer will have upgraded out of the 5S into the Iphone 7+.

    This is a marketing upgrade for Apple. Not a legitimate upgrade for customers to purchase.

  • Report this Comment On September 11, 2013, at 5:30 PM, cmalek wrote:

    @Mathman6577:

    There is a BIG gap between $10 and $549. How about splitting the difference? Even at $400, it would a lot more attractive. But as tempest669 says - it would impact the high margins that Apple management and investors feel is their inalienable right.

  • Report this Comment On September 11, 2013, at 6:34 PM, rgardner101 wrote:

    A $400 5C would've met lower margins for Apple lower margins, that would hurt the stock price as well either way Apple was not going to win it's just as well that they went for the higher margins

  • Report this Comment On September 11, 2013, at 7:27 PM, mastermiki wrote:

    Let's not forget Apple is the luxury line of computers, phones and tablets. It's a Toyota vs. Mercedes thing. People want a Mercedes but can only afford to buy a Toyota, or they will save up for a Mercedes and will buy it bc the user experience is sooo much better.

  • Report this Comment On September 11, 2013, at 8:18 PM, leradron wrote:

    let's face it, it's not really user experience, but marketing/brand. you can find people that prefer toyota over mercedes and you can certainly find people that prefer anything else over apple.

  • Report this Comment On September 12, 2013, at 5:37 AM, CraigWPowell wrote:

    Remember Last year with AAPL $1000 target? Please check what happened with APPL last year:

    /Apple-stock-forecast-12-months-predictions

  • Report this Comment On September 12, 2013, at 5:50 AM, CraigWPowell wrote:

    S is for Same

    C is for Cheap

  • Report this Comment On September 12, 2013, at 9:42 AM, rianjones1983 wrote:

    Could the iPhone5S be the Boost Apple has Been on the Lookout for? http://www.earningsimpact.com/Ideaz/25/Could-the-iPhone5S-be...

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