Financial market research and analysis

Apple is launching the new iPhone at its event on September 12 around 6pm UK time. Speculation about its success has already catapulted Apple shares to new record highs in the lead-up.

Some of the most talked about new features are thought to be:

• $1000 price tag
• No home button
• Facial recognition
• OLED screen with 4K display
• Wireless charging
• A 5.8inch screen
• An all-glass casing

It is rumoured that Apple will release multiple new models. This might include an iPhone 8, a logical numerical progression from the iPhone 7 but also an iPhone 10 (or X in Roman numerals) to match the 10 year anniversary of the first iPhone.

Is removing the home button a risk?

The biggest change expected in the new iPhone will be the screen. The OLED screen is expected to reach the edge of the screen, leaving a very small bezel – and no more home button. The removal of the home button may ruffle some feathers but surveys consistently show iPhone users trust Apple on user experience. If the removal of the headphone jack from the iPhone 7 is any guide, it won’t dent sales but the controversy is good PR.

Is $1000 too pricey?

The lingering fear is that low-cost competition will eat into sales or force Apple to lower the price of the iPhone and eat into its healthy profit margins. Raising the price of the iPhone increases the incentive for users to switch to lower-cost Android devices. $1000 could be the psychological price ceiling for many people.

But iPhone prices should not be viewed in isolation. The new Samsung Galaxy 8 starts at $930. In fact, many Smartphone-makers are moving into the high-end ‘flagship’ phone space with higher prices. To date, the perceived difficulty of switching from iOS to other mobile operating systems has insulated Apple from high-priced competition. As long as the competition is raising the price of flagship phones at a similar rate, Apple can maintain its iPhone margins.

Will this model boost future sales?

The new iPhone will likely be another in a long line of new models with enough incremental hardware improvements to keep existing users upgrading. The gap in quality between iPhones and lower-priced competition is diminishing so it is inevitable the flow of new users will slow. But it hasn’t reaching the tipping point yet.

Augmented Reality is the direction of travel

The motivation for some of these anticipated changes in the iPhone appears to be Apple positioning for Augmented Reality (AR). Apple’s hardware is being led by its software. The new screen and dual camera are aimed at making the most of the Augmented Reality software (ARKit) that will be bundled in with the iOS 11 operating system. A phone was a phone until Apple revolutionised the Smartphone. If Apple can revolutionise the AR Smartphone, it opens up a whole new gambit of possibilities.

There are already a number of AR devices- but they are bulky and expensive and have been slow to get mainstream use. Apple is about to make AR available to all of its millions of users via the iPhone itself. Apple is better positioned in AR than Google because of the continuity between the iPhone and iOS upgrades. Augmented Reality is up there with Artificial Intelligence in technological advances that could change the world. Potential uses for AR start with gaming but extend to use by surgeons and fighter pilots to car repair, advertising and even sightseeing.

Buy the rumour, sell the fact?

Apple shares sit near record highs in the lead up to the product event. That fits the typical pattern surrounding Apple events of buy the hyped up rumours of tech revolution and sell the disappointing facts. Chart 1 shows resistance near $165, a breakout would open up a $10 advance to $175, while a drop could see support come in at $155 then $140.

Chart 1

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