When Tim Cook appears on camera for Apple’s reveal of its latest series of iPhones on Tuesday, the Alabama-born CEO will host an iPhone launch like no other.
The company typically holds its glitzy product showcases in packed auditoriums in Cupertino where fans, journalists and employees often burst into spontaneous applause and cheering.
Tuesday’s launch will be different for many reasons. Aside from the pandemic forcing the event online, Apple is expected to break from tradition and unveil a phone significantly under £1,000.
That was the benchmark set by the iPhone X, which launched in 2017. At the time, Apple’s key product risked becoming a luxury good rather than an essential device to be upgraded every few years.
In the years since, Apple has backed away from the precipice of committing to an era of £1,000 phones. All signs point to Apple continuing this strategy on Tuesday.
“They’re never going to go back,” says Ben Wood, the chief of research at CCS Insight. “I think they are very comfortable with not having to rely on only selling £1,000 phones that are packed with margins.”
Analysts expect the release of the iPhone 12 to kick off an all-important upgrade “supercycle” which Cook will hope causes millions of customers to ditch their older smartphones in order to switch to the latest models.
Wedbush analyst Dan Ives says the iPhone 12 launch will be the “most important product cycle since the iPhone 6 in 2014.”
“The hearts and lungs of the Apple growth story are built around iPhone installed base upgrades,” he says.
Apple is likely to launch four different iPhones, catering to everyone from regular smartphone shoppers looking for an improved camera and battery life, all the way through to loyal Apple fans wanting the most expensive model available.
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It is expected to launch its cheapest new iPhone model at around £699, a far cry from the £1,000 entry point of 2017. More premium devices could sell for £999 and £1,099. Wood calls the iPhone line-up “good, better, a little bit better, best.”
The cheapest model, potentially called the iPhone 12 Mini, is expected to come with dual cameras but will lack the flashier features such as a telephoto lens and LIDAR sensors for augmented reality found in the most expensive new iPhones.
The biggest appeal of the iPhones will be their 5G connectivity, however, likely resulting in faster download speeds.
Reversing course on the slow march to £999 flagship phones has meant figuring out where Apple can reduce its production costs.
“Compromises need to be made to bring prices down to an affordable level,” says Paolo Pescatore, an analyst at PP Foresight. “This will involve, but is not limited to, what is under the hood including the processor, camera, packaging and accessories.”
Cutting the price of its cheapest flagship phone results in smaller margins for Apple on its hardware sales, but the business is increasingly able to recoup that slight reduction in revenue through its growing services portfolio which includes its music and television streaming apps.
Apple announced continued growth in its services division in its latest quarterly earnings, with revenues for the division growing 15pc year on year to $13bn (£9.9bn).
Apple revenues
Any further reduction in iPhone price to stimulate services growth is unlikely, however. “They’re not going to drop their trousers on the price. There’s no way Apple is going bargain basement,” Wood says.
This year, more than any other, the prices of the new iPhones really do matter. The coronavirus pandemic has pushed back the release of the iPhones by several weeks but is also likely to cause many potential customers to think twice about upgrading to a new iPhone.
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“Apple knows that we’ve tapped on the price ceiling in this industry, at least for right now,” says analyst Ryan Reith from IDC. “And then when you throw in the situation and the macro headwinds that we have, it’s not a year to push on pricing.”
Some analysts think the impact of the pandemic is overstated, with Wood saying “there will be plenty of people who are going to go out and buy an iPhone that costs more than £1,000 in the next few weeks.”
Either way, Tuesday is set to be one of the most important moments in Cook’s nine-year spell at the top of Apple.
The business has weathered the pandemic and reopened factories throughout Asia to bring production more or less back to where it needs to be. Now, Cook will hope that customers will create a supercycle of demand for the most unusual iPhone launch in years.
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