For the first time in well over a decade, Apple (NASDAQ:AAPL) was forced, on Jan. 2, to negatively revise its quarterly financial outlook. In a letter to shareholders, Apple CEO Tim Cook placed the blame squarely on the shoulders of the company’s iPhone business.
“While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be,” Cook explained.
Recently, one market analyst posited that part of Apple’s problem in China is that the company’s products are having a tough time competing due to “exorbitant price & uninspiring design change from iPhone X.”
Will Apple’s 2019 iPhones help change that? Thanks to The Wall Street Journal, we now have some concrete details about Apple’s upcoming trio of iPhones, which might help us answer that question.
Per the report, the successor to today’s iPhone XS Max — Apple’s largest and priciest iPhone — will sport a triple rear camera, up from the dual rear camera found in today’s model.
Apple will apparently be returning to its old segmentation playbook, as the triple rear camera will be limited to the iPhone XS Max’s successor, while the successor to the iPhone XS will continue to incorporate a dual rear camera. The successor to the iPhone XR — a device that appears to have underperformed relative to expectations — will also apparently incorporate a dual-lens camera, which represents an upgrade from the single-lens camera found in today’s model.
In addition, the report claims that “Apple is considering trimming functions from its 2019 lineup to cut costs,” with the company’s so-called 3D Touch functionality potentially getting the ax.
So, what does this mean for Apple’s iPhone business?
It all adds up
Apple has been trying to increase iPhone average selling prices as a way to spur revenue growth. By limiting the triple rear-facing camera to the company’s highest-end model, Apple would encourage up-sell to that device. Apple has historically differentiated its “Plus” line of smartphones with more advanced cameras than their non-“Plus” counterparts, so this is a return to form for the company. (And, frankly, it’s the right move.)
At the same time, Apple has garnered criticism for the pricing of its latest devices. It wouldn’t surprise me if the company reduces prices across the board for its upcoming models in a bid to spur demand. To do that without having a large negative impact on the gross margin profile of the business, the company is going to need to lower its cost structure.
A good way to achieve that is to remove features that cost a lot but aren’t highly valued by the general consumer base. 3D Touch feels like the most obvious feature to remove — Apple already did so with the iPhone XR. As The Verge’s Jacob Kastrenakes put it, “And three years later, nobody is really using [3D Touch] — Apple included.”
Ultimately, I think the success of the coming iPhone product cycle will depend on how competitive these new devices are in terms of features and capabilities as well as in their pricing. The news around the camera upgrades certainly seems positive, but there are still many other unknowns that make it hard to provide a good prediction just yet.
For the sake of Apple’s shareholders, though, the company had better be planning a set of killer new iPhones for September — at prices consumers are more willing to pay.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool is long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.