What happened
Shares of Apple (AAPL -0.81%) started Tuesday's trading session up 2.6% before giving back some of those gains later in the morning. Worries over higher interest rates and the economy have sent Apple shares down 14% year to date.
There were reports out of China that demand for iPhone 14 Pro was strong and that there was lower demand for lower-priced models. Here's what that might mean for Apple's business.
So what
Reports surfaced Monday evening that Foxconn Technology Group, the manufacturer of iPhones in China, was shifting production to Pro models instead of the lower-priced standard iPhone 14. Investors should always take supply chain reports with a grain of salt, but this news could be legit, since it echoes similar reports of consumer demand trends in the U.S. for the new iPhones.
When the iPhone 14 first launched over a week ago, Apple's website showed longer wait times for the high-end Pro models than for the standard models. Many stores sold out of their initial inventory of the Pro version, while some stores had plenty of lower-priced models.
Now what
Higher demand for the pricier Pro models could benefit Apple's margins, but sales of iPhone 14 might be down overall. Specifically, Jefferies analyst Edison Lee noted that iPhone 14 sales in China are down 10.5% from the iPhone 13, based on new data.
Apple's iPhone and services posted record revenue in the fiscal third quarter, which ended in June, with the active installed base of devices hitting new highs across all product categories. At least through the recent quarter, inflation didn't seem to be affecting Apple customers' ability to buy new iPhones, but management cited weakness in digital advertising with the services business and across its products.
While it's still too early to know whether the iPhone 14 is a hit with customers, Apple doesn't necessarily have to grow iPhone revenue to win. But it needs to keep growing its installed base of devices, which tends to lead to more sales of apps and other high-margin services.
