Apple: (AAPL: $106, down $3)
As expected, Apple recently unveiled its next-generation iPhone and Watch, as well as new wireless headphones, called AirPods. From our perspective, the addition of GPS was the key positive of the Watch refresh. On iPhone, the new features were also in line with expectations, with Apple reacting to the negative backlash resulting from the removal of the headphone jack by explaining the move and including both Lightning-based headphones and an adapter for analog headphones with each new phone. The higher memory of the phones was also a positive. Plus, the phone is waterproof now. All in all, it continues to be difficult for Apple to truly surprise with its new products given significant supply chain leaks, as the recent announcements were essentially in line with supply chain chatter.
The new iPhone 7 and iPhone 7 Plus are 40% faster than iPhone 6s due to Apple’s new A10 Fusion processor. The new models are 120 times faster than the first iPhone. Two new colors were added to the phone, black and jet-black, joining the three traditional colors: gold, silver and rose gold. Storage was doubled compared to previous launches, with the iPhone now coming with 32GB, 128GB and 256GB of memory priced starting at $649, in line with previous releases. Apple highlighted the upgrades to the camera, with the camera now featuring a 12-megapixel lens, but disappointedly only the larger Plus version will come with dual cameras. Overall, we thought that the phone was an improvement over previous models, but not a game changer that will reignite a significant upgrade cycle.
Apple also released Watch Series 2, with the main new feature being its standalone GPS capabilities. Apple is clearly focused on gaining share in the fitness community and partnered with Nike to create a Nike Plus version of the Watch. Watch Series 2 is also “swim proof,” allowing users to swim and shower with their watch. Additionally, the Series 2 is 50% faster than the Series 1. The starting price for the new watch is $369 and Apple will be offering a version of the Series 1, with an updated processor for $269. In our view, the standalone GPS is an important upgrade and the lower price of Watch Series 1 puts the product in a more competitive price range.
BMR Take: While the focus of the day is on product features, the most important takeaway in our view is that consensus top and bottom line estimates remain largely in-tact post the mega event. The 2017 consensus EPS outlook of $8.95 is still stable as well as the 2017 revenue outlook of $225 billion. Everybody can debate the merits of the new gadgets from the new product launch, but the bottom line is a story about very strong financials. We continue to see significant value in the shares.