In this segment from the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio and Supernova's Matt Argersinger, Total Income's Ron Gross, and Motley Fool Pro and Options' Jeff Fischer parse what the world learned from Apple's (NASDAQ:AAPL) big event last week. The upgrades and new iterations of its popular devices will certainly give the world's largest tech company a boost starting in the fourth quarter. But it's doing something unusual (for Apple) in terms of its old models.
A full transcript follows the video.
This video was recorded on Sept. 15, 2017.
Chris Hill: We begin with the biggest public company out there. On Tuesday, Apple held their much-anticipated event to announce upgrades to the new Apple Watch and the upgraded Apple TV. The big headline though, Matty, the unveiling of the iPhone X. It comes with facial recognition and a price tag of $1,000.
Matt Argersinger: Lot of expensive bells and whistles. But, let's talk about the iPhone. It's still 70% of Apple's total revenue. I ran across this article by one of our fool.com writers, Ashraf Eassa, -- I hope I'm getting that right, Ashraf, if you're listening -- he pointed out something interesting with the launch of the iPhone 8 and the iPhone X, and that is, unlike previous launches, Apple is not discontinuing the older models. They'll still make the iPhone 7, still make the iPhone 6, even still make the iPhone SE, which is the cheapest model. And I think this is an interesting shift that's not really being talked about. Apple now has a range in the iPhone, from as low as $350 to over $1,000 for the iPhone X. I think that's an important strategic move as they try to gain market share in places like India or China where someone isn't going to spend $1,000 for a smartphone. The risk here, of course, is what it does to Apple's average selling price for the iPhone. I think that's the thing as an investor that I want to be watching for. I want them to be able to gain market share around the world with the iPhone, but at the same time, I want to hold onto those high ASPs. If not enough people buy the iPhone 8 and iPhone X, that's not going to happen.
Ron Gross: Let's face it, consumers love a good installment program, and that's how I think they'll sell this $1,000 phone. Advertise that over two years, it doesn't feel like $1,000. And now, $600-$700 phones don't feel like $600-$700 phones because we're paying it off monthly. I hearken back to the days of the subsidized phone, but those days are gone. I do think these will sell, and I don't think the $1,000 will scare everyone away. Maybe a few. But I do think it'll sell. The only piece I think they're going to have trouble with is the facial recognition. I'm concerned about that. I'm concerned about glitches, I'm concerned people aren't going to like it, and there could be a problem.
Hill: Yeah, it's one thing, Jeff, to have your fingerprint. I don't know, it just seems, on a gut level, on an emotional level, it's one thing to activate your phone with your thumbprint, and it's another thing if it's your face.
Jeff Fischer: I might be an exception there, because I don't really mind, it doesn't bother me.
Hill: Well, you're handsome.
Fischer: [laughs] That's kind of you. For security reasons, there's much more to worry about, in my opinion, than your face or fingerprint once you've already put it out there. But, what I want to talk about, Chris, I love the pivot, is their headquarters, their new headquarters look amazing. I think they could sell tickets just to tour that place for a pretty penny. But, as to the product rollouts, I would give Apple about an A on the new phones, the new Watch, and the new Apple TV, they all look compelling to me, and Apple seems to be executing across the board.
Hill: You have to be happy, Matty, if you are the mobile carriers here because in addition to the excitement around the new phone, there was also some buzz, the latest version of the Apple Watch is now going to have cellular service, and there are mobile carriers that are happy to provide that service for an extra $10 a month.
Argersinger: That's right. More devices connected to everything. I'd also throw in, in addition to the Verizons and AT&Ts of the world, the American Towers, Crown Castles, SBA Communications, all those wireless towers that are enabling all these devices to be connected, more and more devices are coming online every day.
Fischer: So true, Chris, we didn't even talk about the software enhancements that are upcoming, and Apple's services, which we talk about regularly here on the show. It's a giant business in and of itself, high margin and it continues to grow.
Argersinger: I was convinced, you ask us at least once a year what's going to be the first $1 trillion publicly traded company, and Apple had this lead. I've been hot on Amazon to that, but now I think Apple has the momentum. They could probably do it, and they can probably do it pretty soon.
Fischer: I don't know, should we let Matty change? Because I said Apple.
Argersinger: No, no, I'm not changing, but I might have to concede here early.
Hill: So, they had the event on Tuesday. Pre-orders come later. And people actually getting this brand-new phone in their hands comes later than that. In terms of all the investors out there, when should we expect to see some sort of material result in their results?
Argersinger: This is a fourth-quarter story, I would say. This is all about the momentum. The pre-orders start at the end of September ... or October? I'm off by month.
Hill: It's going to be November before people can actually --
Gross: Haven't we also already started hearing about some inventory problems, perhaps?
Argersinger: With the higher-end phones, yeah.
Gross: You never want to see that.
Fischer: It's likely to go well into next calendar year as sales keep coming through strong.
Argersinger: I think the fourth quarter, we'll get our initial look at what kind of momentum the phones have, and I expect they'll have quite a bit, as Ron was alluding to.
Chris Hill owns shares of AMZN. Jeff Fischer owns shares of AMZN, AMT, and Apple. Matthew Argersinger owns shares of AMZN, AMT, Apple, and CCI and has the following options: short December 2017 $800 puts on AMZN. Ron Gross owns shares of AMZN and Apple. The Motley Fool owns shares of and recommends AMZN, AMT, Apple, CCI, and VZ. The Motley Fool has the following options: short April 2018 $130 calls on AMT and long January 2019 $80 calls on AMT. The Motley Fool has a disclosure policy.
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