Appleit is (AAPL 1.49%) the stock has fallen about 10% since mid-September. The main causes of the decline were numerous reports that sales of its base iPhone 14 and 14 Plus models were disappointing and an overall slowdown in consumer demand in the tech market.
As the most valuable company in the world, with a market capitalization of $2.37 trillion, Apple is one of the most scrutinized companies in the world. The past two months have been no different, with analysts separating the company’s iPhone launch in September from the unveiling of its 2022 iPad lineup in mid-October.
Understanding the strategy behind Apple’s recently announced products can be a great way to predict how far your investment will go. So here’s why Apple’s new products have been making headlines.
A confusing iPad launch
On October 18, Apple unveiled its 2022 iPad refresh introducing a newly designed base iPad and upgraded iPad Pros. Time will tell how Apple’s new tablets fare with consumers, but the media was quick to criticize the devices. Bloomberg called the new iPad line “puzzling”, while Techradar said “the software and now the hardware is a mess”.
The main reason for the confusion is the upgrades from the entry-level iPads, but not the Pro versions. The base iPads received a redesign with new colors, moving the front camera to the landscape edge, and a revamped Magic Keyboard accessory. Meanwhile, the 2022 iPad Pro models have received the smallest update in their history. They’ve been moved to the M2 chip, making them 15% faster than their predecessors, along with other minor performance improvements.
However, the more expensive versions did not receive the same optimal camera relocation or redesigned Magic Keyboard. The Pro models haven’t even received the usual camera or display upgrades that consumers have come to expect year after year. As a result, Apple gave consumers little reason to upgrade to the 2022 iPad Pro and caused confusion by omitting features that came with the base iPad.
Plus, despite the base iPad’s more enticing upgrades, it hasn’t been spared from the critics. The tablet has undergone a major overhaul, including its charging port changing from lightning to the market-preferred USB-C. However, it’s still only compatible with the 2015 Apple Pencil accessory which charges via lightning rather than the redesigned 2018 version which charges magnetically on the side of higher-tier iPads. Therefore, users must use an adapter to charge their Apple Pencil with the new basic iPad.
The iPhone 14 Plus is a bust
Along with a confusing iPad lineup, Apple reportedly faced dismal demand for its iPhone 14 Plus, which hit stores on October 7. The base iPhone model was announced on September 7, along with two new Pro models and a standard-size base model. Apple had high hopes for the bigger iPhone 14 because it meant a shake-up of the lineup. There hasn’t been a Plus-sized base model since 2017’s iPhone 8 Plus, as larger iPhones are exclusively Pro versions.
However, the rising cost of living and a tough price point led Apple to halt production of the iPhone 14 Plus on October 18 to reassess demand. According to The Information, two of the company’s suppliers are cutting production by 70% and 90%.
The iPhone 14 Plus is priced logically in the range, at $899, while the smaller iPhone 14 is $799 and the Pro models are $999 and $1099, respectively. However, looking Verizon plans, the 14 Plus is priced at $24.99/month, while the 14 Pro Max is $30.55/month and the 13 Pro Max is $10/month. Given that many Americans will likely buy their new iPhones through a carrier plan, there’s little reason to get the Plus.
Consumers who want the bigger iPhone can get the 14 Pro Max with all the new features for an extra $5.56 per month, or those with older phones can get the 13 Pro Max, which is 60% cheaper than the 14 Plus and has more features.
Should you buy Apple shares?
Struggling iPhone sales are worrisome, as the popular devices have accounted for 40-70% of Apple’s revenue over the past decade. In fact, its iPhone sales accounted for 49% of Apple’s reported revenue for the last quarter of 2022.
With these details in mind, it’s certainly possible that the tech company is heading for a weak quarter. Even so, Apple probably won’t stick around for long. After all, Apple is home to some of the most innovative and popular products in the world. This unique strength has helped Apple’s stock grow 270% over the past five years despite a pandemic and falling iPhone demand in 2022.
The company reported free cash flow of $20.79 billion in its most recent quarter, suggesting it’s well equipped to weather a year of weak iPhone sales. In the end, Apple shares remain an excellent long-term investment.
Dani Cook has no position in the stocks mentioned. The Motley Fool holds positions and recommends Apple. The Motley Fool recommends Verizon Communications and recommends the following options: $120 long calls in March 2023 on Apple and $130 short calls in March 2023 on Apple. The Motley Fool has a disclosure policy.
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