Apple‘with (AAPL 1.66%) shares are down about 10% since mid-September. The main reasons for the decline were numerous reports that sales of its base model iPhone 14 and 14 Plus were insufficient and an overall slowdown in consumer demand in the technology 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 last two months have been no different, as analysts distinguish between the September launch of the company’s iPhone and the introduction of the 2022 iPad range in mid-October.
Understanding the strategy behind Apple’s recently announced products can be a great way to predict where your investments will go. Here’s why Apple’s new products are making headlines.
Confusing iPad launch
On October 18, Apple unveiled its new iPad for 2022 by unveiling a redesigned entry-level iPad and improved 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 “a mess”, while Techradar said its “software and now hardware is a mess”.
The primary reason for the confusion lies in upgrades to basic iPads, but not to Pro versions. The basic iPads received a redesign with new colors, the relocation of the front camera to the edge of the landscape and the improved Magic Keyboard accessory. Meanwhile, the iPad Pro 2022 models received the smallest update in their history. They were bumped to the M2 chip, making them 15% faster than their predecessors, along with other minor performance improvements.
However, the more expensive versions did not get the same optimal camera relocation or the redesigned Magic Keyboard. The Pro models also didn’t get the usual camera or display upgrades that consumers have come to expect year after year. As a result, Apple has given consumers little reason to upgrade to the iPad Pro 2022 and caused confusion by omitting features given to the base iPad.
Plus, despite the more enticing improvements to the base iPad, it hasn’t been unscathed. The tablet has undergone a significant redesign, including its charging port, which has switched 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-end iPads. As a result, users need to use an adapter to charge the Apple Pencil with the new basic iPad.
The iPhone 14 Plus is a bust
In addition to the confusing lineup of iPads, Apple has reportedly faced pent-up demand for its iPhone 14 Plus, which hit stores on October 7. The entry-level iPhone was announced on September 7, along with two new Pro models and a standard-sized entry-level model. Apple had high hopes for the larger iPhone 14, as it meant a shake-up in the lineup. Since the 2017 iPhone 8 Plus, there has not been an entry-level Plus size model, as the larger iPhones have been exclusively Pro versions.
However, the rising cost of living and difficult pricing 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 has a logical price point in the lineup, coming in at $899, while the smaller iPhone 14 is $799 and the Pro models are $999 and $1,099. However, looking at Verizon The 14 Plus is priced at $24.99 per month, the 14 Pro Max at $30.55 per month, and the 13 Pro Max at $10 per month. Since many Americans are likely to get their new iPhones through a carrier plan, there’s no reason to get the Plus.
Consumers who want the biggest iPhone can get the 14 Pro Max with all the new features for an additional $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 stock?
Struggling iPhone sales are worrisome because the popular device has accounted for 40 to 70% of Apple’s revenue over the past decade. iPhone sales actually accounted for 49% of Apple’s revenue reported for the final quarter of 2022.
With these details in mind, it’s certainly possible that the tech company is headed for a weak quarter. Even so, Apple probably won’t stay down for long. After all, Apple is home to some of the world’s most innovative and popular products. This unique strength has helped drive Apple’s stock up 270% over the past five years despite the pandemic and reduced demand for iPhones in 2022.
The company reported free cash flow of $20.79 billion in its most recent quarter, suggesting it is fully equipped to weather a year of weak iPhone sales. Apple stock remains an excellent long-term investment.
Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Apple. The Motley Fool recommends Verizon Communications and recommends the following options: long March $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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