Analyst Explains Why iPhone X Will Determine Apple’s Future

iPhone-X1 Credit: WSJ
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Apple’s future might rest on how well the iPhone X does when it launches next month, according to analyst Daniel Ives of GBH Insights.

In his report, Ives sees Apple at a crossroads. On one hand, the iPhone X and its revolutionary upgrades could indeed spur the rumored “super-cycle” for Apple. But, on the other hand, if the iPhone X doesn’t “bear fruit,” it could negatively impact the company’s earnings for years. Either way, Ives said the future could be decided by the iPhone X’s reception.

While the iPhone 8 has seen weaker than normal demand, Ives noted that the iPhone X could become a “game changer” that could lead to the aforementioned super-cycle. In fact, Ives predicts that the iPhone X product cycle could be one of Apple’s most successful to date, due to the “pent up demand,” among other factors, CNBC reported.

Sticker Shock

What remains to be seen is how much consumers will be willing to pay for the new device, how many users in the installed base will upgrade, and notably, how well the iPhone X does with consumers in China.

Although the iPhone X’s high price tag might have some “sticker shock” for Chinese consumers, Ives believes that the premium OLED smartphone could attract middle-class and wealthy customers in the country — particular those who have not committed to one device ecosystem or another. How well Apple does in China is becoming increasingly important: the country will account for 25 percent of Apple’s total revenue next year, with that number expected to rise to 30 percent by 2020, Ives said.

Ives based his predictions on data that GBH Insights has collected. The analyst estimates that there are more than 350 million users with an iPhone at least 2 years old. And in a survey conducted this month, GBH Insights found that 93 percent of iPhone owners who plan to upgrade their devices next year will purchase an iPhone.

Pent up Demand

“The last time we saw pent up installed base demand and consumer feedback mirroring (or close to) this was around the iPhone 6, which ultimately became a critical and unprecedented successful launch period for Apple,” Ives wrote. “Our model assumes Apple sells more iPhones in the 12 months following the iPhone X and iPhone 8/8+ launch than the peak iPhone 6 upgrade cycle.”

If that model turns out to be accurate, Ives predicts that sales of the 2017 iPhone lineup will fuel Apple’s growth into next year. He added an estimated stock price of $160 to $175 through the next 18 months. In a “bull case,” Apple could see a stock price up to $230 by 2018 — which would bring the company past its $1 trillion valuation milestone. Though that case relies on strong demand and a resurgence in China.

The iPhone X will launch on Nov. 3 and will retail for $999.

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