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WSJ Your Money Briefing
Will iPhone 8 Hurt Apple's 'Supercycle?'
00:07:54
Analysts are expecting an Apple earnings 'supercycle' to begin with the unveiling of a trio of new iPhones. But Wall Street Journal columnist Dan Gallagher says some tepid reviews for the iPhone 8 and 8 Plus could dampen results.
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- [00:00]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [00:05]
Retail Industry Representative
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [00:15]
Small Business Owner
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [00:20]
Retail Industry Representative
they need while increasing megastore profits. They deserve it, don't they?
- [00:26]
Advocate Against Durbin Marshall Bill
Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.
- [00:34]
Dan Gallagher
This is yous Money Matters from the Wall Street Journal.
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JR Whalen
Welcome to youo Money Matters. I'm JR Whalen in New York. With the announcement of Apple's new line of products this month, including a cell connected watch and a trio of new iPhones, the eyes of the business world are on the tech giant to enter what has been described as, as a super cycle of growth, with some analysts expecting a record $87 billion in revenue for the December quarter. But Wall Street Journal heard on the street columnist Dan Gallagher suggests there are few flies in the ointment that could get in the way of that super cycle being so super. And he joins us via Skype from San Francisco to discuss. So, Dan, eyebrows were raised not long after Apple announced these new products, right?
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Dan Gallagher
Yeah, they, I mean, this was just last week that they showed them to the world finally, of course, after months of all the, all the leaks and rumors and everything else. So it turned out Apple can't really surprise anymore. The new stuff was kind of in line with what, with what people thought. The one surprise was that they kept some of their older phones. They usually, like, put out a new phone and then demote the one that's just older than that and then kind of lop off the rest. So they, they're typically selling two phones, one at a new price, one for 100 less. This year, once the iPhone 10, the X starts selling in November, they're going to have five phones in their lineup, five iPhones, and ranging in price from like 350 above to above 1,000. So that's, that's a little unprecedented. And it's kind of introduced in my mind a little bit of a question as to how the mix of sales is really going to pan out.
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JR Whalen
And that's a point you make in your story that Apple will have five iPhones on the market, which could impact the average selling price. That's a number that's very closely watched by investors.
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Dan Gallagher
The fake problem is that now there's, there's. So there's a lot of, there's a lot of optimism about the cycle. Investors expect that average selling price to go up in fiscal 18. In fact, they expect it to pass $700 for the first time in the iPhone's history. And what that implies is, I mean, Apple doesn't say how many of each model it sells when it reports, reports its results. But, you know, you can kind of use some of the math to figure where the mix has been. What that implies is that people think that the more expensive phones, especially the iPhone 10, the iPhone X that people call is going to be a huge seller when that comes in November. And if it is, that'll bring that average selling price up. But if it's, if you know that, but we hear that's going to be production constrained and that if people don't like the whole, you know, face ID thing or, I mean, there's a lot of things that we, that it's not a gift, it very well could be a very big seller. It also could be a little disappointing to what people think it'll be. And if it does, you know, you can bring that mix down. That's where you kind of get into this question of how's the cycle really going to play out for them?
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JR Whalen
And you also have to bring into the mix the tepid reviews that we've seen for the new Apple watch as well.
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Dan Gallagher
Exactly. And honestly, the iPhone 8 hasn't gotten, you know, a lot of reviews have essentially said, yeah, it's a decent phone, but either wait for the 10, or in the case of our own Jeff Fowler said, you know, the seven is really good. If you don't really need the latest, if you don't really want to wait for that 10, get the 7 and save yourself some money. I've seen and a few have said that. So that's, that's not great for the phone that's going on sale today. And then the, the whole, the Apple Watch 3, the whole idea for that is that has to connect directly to cell networks. That's why that was kind of its selling proposition. And it looks like it's having a problem doing that reliably.
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JR Whalen
And those products are going on sale today, Friday, September 22nd, when we're speaking with Dan Gallagher about expectations for Apple following the unveiling of its new line of products. And you're listening to your money matters from the Wall street journal. Thanks for listening, everybody. Now, Dan, if anyone has any question about the importance of the iPhone to Apple, you have a wonderful stat and you year column. Apple's smartphone business alone would rank number 12among Fortune 500 companies in annual revenue. That is staggering.
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Dan Gallagher
It is. I mean, and it's, I mean, I think people think of it as like, oh, yeah, this is Apple's biggest business. It's important to them. It's a, it's a big business in its own right. And so when you, when it may seem to nitpick about, okay, how many of what model they're going to sell, it does matter a lot. There's a lot of market value riding on, especially this coming year being a big cycle. So it's being watched very closely. It should be watched very closely. And that's, and I think that's why we're seeing the stock. I mean, the stock has essentially come down about 5% now since they unveiled these phones last week. And some of that's because it had a big run up ahead of that. But I think a lot of it has been like, you know, these early reviews haven't been terribly strong, and now there's some question about how is this cycle really going to play out.
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JR Whalen
So you think there's a little bit more to it than just buy the rumor, sell the news.
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Dan Gallagher
Yeah, I mean, that happens sometimes when an Apple has become very cyclical stock. So when it has a big iPhone cycle, the stock runs up and then it comes down. So I think some of that was going to happen. But to have the amount that's happened so far right up to the sale day, and what you've noticed is that the last three days have been the hardest hit on the stock. And that's been when the reviews, especially of the Watch, have come out. And that's kind of damaging for them because Apple usually gets its products right at the launch. They take a long time to really perfect their products. So to put a product out like the Watch, that doesn't seem to do what specifically what they said it could do on a reliable basis does hurt them. So the Watch isn't a huge part of their sales, but image wise, it doesn't help.
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JR Whalen
Yeah, you're right about that. It almost seemed to me at least that it was sort of rushed to market when you saw the reviewers saying, you know what, they're dropping the calls and such. And you're right. Apple products don't, don't do that.
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Dan Gallagher
Yeah. And that's, and a lot these reviewers are people that love Apple products. I mean, Apple products tend to be really well, do really well with reviewers because they do spend the time to craft them and get them right. And they're, they're. Well, they're well made, you know, attractive. So, you know, when the ones I've read keep saying, you know, very clearly don't buy this yet, it's really not done, that's damaging to them. Not in the same way that if you said that about the iPhone because, you know, the watch is a small contributor to sales, but it's the image impact I think is pretty significant.
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JR Whalen
Well, we will see what the early adopters do. I guess that Apple is really relying on them to come into the stores and buy the watch regardless of the reviews. Buy the Watch, buy the iPhone 8 and the 8 Plus and get it out into the marketplace and, and let everyone see it.
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Dan Gallagher
Yeah. And I honestly, I think a lot of those early adopters and that's the trick on this cycle. You know, my colleagues on the news side wrote today that, you know, the idea that a lot of people are going to wait for the 10, the X that's coming out in November. And I think for people that are really those early adopters and also the big devoted Apple fans, I got a feeling most of them are waiting for that anyway because that is the big new phone they're doing with a new design. So I, you know, I got a feeling that phone will do better again though. We have to wait and see. And you know, when, when, you know, the phone gets tested and this whole face ID thing to see if that, you know, works as promised. That's. We don't know any of that yet. We'll have to see, I think, when that comes.
- [08:10]
JR Whalen
Well, it's a big test for Apple. The iPhone X expected to hit Apple stores in November. Wall Street Journal's Dan Gallagher joining us via Skype from San Francisco. Dan, thanks so much for being with us.
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Dan Gallagher
My pleasure.
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JR Whalen
And thank you for listening to youo Money Matters. I'm JR Whalen in New York for the Wall Street Journal.
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Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [08:32]
Retail Industry Representative
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [08:41]
Small Business Owner
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [08:46]
Retail Industry Representative
they need while increasing megastore profits. They deserve it, don't they?
- [08:52]
Advocate Against Durbin Marshall Bill
Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.