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Apple needs the iPhone X to live up to its hype

Ten years after the debut of the iPhone, US tech giant Apple has launched its latest version, the iPhone X. But is there enough innovation in the product to keep tech fans happy?


Garry White

in Features


Apple’s iPhone is the most profitable product in history. The latest version, launched with much fanfare overnight in the tech behemoth’s headquarters Cupertino, California has to deliver to maintain the group’s valuation. Apple shares have increased by 39% this year in the run up to the launch and the company is now valued at £831bn.

The iPhone is by far the group’s most important product – generating about 63% of total group sales. However, the smartphone market is slowing as the pace of innovation in new handsets slows. Indeed, this fact was blamed for a recent profit warning from Dixons Carphone, with the company noting that the slower increase in technical innovation saw people reluctant to upgrade. “As a consequence, we have seen an increased number of people hold on to their phones for longer,” Dixons said. 

Also, people holding on to phones for longer has led to an increase in SIM-only contracts. A SIM-only deal offers a package of minutes, texts and mobile data for a monthly cost, much the same as a traditional mobile phone contract. The difference is that the user doesn’t get a new handset – just the smart card for inserting into a phone. Recent research from market analysis group CCS Insight suggested that more than half of mobile contracts in the UK will be SIM-only by 2021

However, investors may be reassured on this front following the success of Samsung’s Galaxy Note 8, launched last month. Samsung executive DJ Koh said pre-orders for its Galaxy Note 8 premium smartphone have hit the highest-ever for the Note series, beating its predecessor Note 7 over five days by about 2.5 times.

The smartphone market is definitely maturing – and therefore slowing. In 2016, total iPhone sales fell by 11.8%. Apple is therefore trying to beef up its services offering, which include the iCloud, app store sales and Apple Care offering. This is a key area to watch in upcoming earnings reports. 

This slowdown has also created some market concern about margins. Margins are supported by large volume sales, so if the number of handsets shifted by the company falls there is a real risk that margins could be hit.  Indeed, in its third-quarter earnings call, Apple said margins in the final three months of 2017 would be between 37.5% and 38%, which was lower than the consensus expectations of 38.2% at the time. 

So, has the new iPhone got enough innovation to keep sales buoyant?  

The most obvious difference from previous models is the absence of the home button, which is arguable hardly a major innovation. The screen is therefore larger, with a new Face ID operation to open up the phone. Face ID will also be used for a new feature called Animoji – which is a set of emojis that can reflect the users own facial expression. The phone also has more “augmented reality” features for the phone – where the camera can add factors to the user’s view of the world – as seen in last year’s Pokeman Go craze.

Apple shares fell slightly after the unveiling, because there were no real game-changers in terms of innovation. Customers remain loyal, but the price of the new handset of $999 in the US and a very steep £999 in the UK may cause some to balk. Sales data over the next few months will determine whether this year’s $232bn increase in valuation of Apple is sustainable. 

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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