With the holiday season a few months away, Apple (NASDAQ:AAPL) is preparing for its annual product upgrade launch. Held in September each year, the Cupertino, California iPhone maker rolls out a slew of new devices just in time for the gift-giving season.
This year is no different. According to media reports and leaks, Apple will launch three new iPhones, two of which will be geared toward the professional market, replacing its iPhone XS and iPhone XS Max. The devices won't be revolutionary but they will include advanced technology that improves the rear-facing camera. They will also come equipped with an upgraded Face ID sensor and a faster processor to enable better augmented reality. Apple is also expected to release upgraded iPads, MacBook Pros, AirPods, Apple Watch and HomePod smart speakers at the event slated for September 10 at the Steve Jobs Theater located at its headquarters in Cupertino, California. With more services coming down the pike, Apple will likely use the event to talk about those efforts including Apple Arcade, which provides users with access to games on a monthly subscription basis.
Apple's September product launches have traditionally been highly anticipated and long speculated about. In past years, Apple has wowed consumers and Wall Street by churning out beautifully designed products including its flagship iPhone.
Trade war, elongated upgrade cycle could weigh on sales
This year is a little different. Apple won't have a 5G iPhone in its product line up, with some models expected to come with a hefty price tag, at least on the professional side. With consumer interest in spending $1,000 or more for a smartphone waning and with the replacement cycle elongating, it's not clear how these new phones will do during the critical holiday shopping season. Add the trade war with China and Samsung Electronics' recent launch of the Galaxy Note 10, Galaxy Note 10+ and the Galaxy Note 10+ 5G into the mix and it's not surprising some investors are worried.
Apple has been focusing on subscription services such as Apple Music, the App Store, Apple TV and iCloud for its next bastion of growth, but it's still a relatively small portion of its overall revenue. In its third quarter reported in June, Apple posted services sales of $11.46 billion, marking a 12% gain year-over-year. That compares to iPhone sales, which amounted to $26 billion, but down from $29.5 billion in the year-ago third quarter. Apple expects services to account for $50 billion of its revenue by 2020.
Despite the talk of services becoming its next growth driver, the iPhone is still extremely important to its bottom line. In addition to accounting for the lion's share of its sales, Apple needs the iPhone to drive its services business. It also has to win back the adulation of consumers across the globe that not too long ago couldn't live without their iPhone. With smartphone makers in China churning out devices that have all the tech that the iPhone offers but at a fraction of the cost, sales of the iPhone have been slumping in China.
Apple's shares move with trade war developments
In addition to facing questionable demand, Apple has to contend with the trade war between the U.S. and China that late last week seemed to get worse. After the U.S. said it would slap a 10% tariff on $300 billion of Chinese goods beginning in September, President Donald Trump urged companies to find an alternative place to do business other than China. That sent Apple's stock down since China is home to its manufacturing and is a big consumer market for the company. If the trade war gets worse it could cost Apple more to make its products. Couple that with demand by Chinese consumers for cheaper smartphones, and Apple could be in for some problems if the U.S. and China don't reach a truce. The stock has reflected the confusion on the trade war front. Late last week shares of Apple fell after the battle seemed to escalate but at the start of this week, the stock appreciated as it looks like China and the U.S. could hold more talks.
The best-case scenario is for Apple to wow the world with its upgraded devices and for the trade war to end before the holiday selling season kicks off. If that materializes Apple's stock should hold up, but if the trade war escalates and the new devices aren't well-received, Apple investors could be in for a rough few months.