After months of speculation that have driven its shares to all-time highs, Apple (AAPL) has unveiled a slew of new products that included Apple Watch. The wrist-worn health-monitoring, payment and communication device marks its entry into wearable computing - its first new product category since it revolutionised the tablet personal computer space with the iPad in 2010.
Given Apple’s size - it recorded $171bn (£106bn) in sales last year, equivalent to Vietnam’s GDP - the Apple Watch may not have an immediate financial impact. But the wearables market is forecast to grow from $10bn this year to $170bn in 2020, and broker Morgan Stanley predicts Apple will sell 30 to 60 million Apple Watches in its first year which may partially offset flagging demand in the saturated high-end smartphone and tablet markets. And by incorporating health-monitoring, payment and automated home technology, it will make it even harder for customers to leave Apple’s product ecosystem.
As expected, Apple introduced iPhone 6, the latest iteration of its smartphone. It offers a larger screen size than previous models and comes in two sizes, 4.7 and 5.5 inches, which may help Apple regain share of the smartphone market - research firm IDC estimates that 56 per cent of global smartphones sold in the second quarter were 4.5 inches or larger, compared with 35 per cent a year ago. Its success will be key to Apple's short-term prospects as iPhones account for roughly half of total sales.
The tech titan also revealed Apple Pay, which uses near-field communication (NFC) to let people pay for goods in shops with just a wave of their iPhone or Apple Watch. The service will be secured by fingerprint verification and won’t reveal credit card numbers or purchase information to Apple or the retailer involved. Apple has partnered with MasterCard, Visa and American Express to offer the service at 220,000 merchants in the US including Subway, Starbucks and Disney.
Of course, Apple won’t have a free run at any of these markets. Competitors such as Intel, Huawei, LG and Samsung recently revealed their latest smartwatches and smartphones. And in the nascent digital payments market - which could be worth $1 trillion by 2017 according to IDC - Apple faces not only tech companies but banks, payments specialists and carriers such as Vodafone, which is launching its own mobile wallet next month. Nevertheless, the 800 million-odd credit cards that are stored on Apple’s iTunes platform should provide a useful headstart.
The launch event was held at the historic Flint Center in Cupertino, where founder Steve Jobs unveiled the original Macintosh 30 years ago and the iMac in 1998, which helped relaunch the company. Apple chose the site to mark the latest chapter in its story and to dispel any doubts about its ability to create revolutionary products following Mr. Jobs’ demise. It has faced mounting pressure to rejuvenate its sales after a year of low single-digit growth. Analysts expect it to grow its sales by about 8.5 per cent in its December quarter and by an average of 10 per cent over the subsequent three quarters - a step-up from last quarter’s 6 per cent rise in sales and last year’s 9 per cent increase.
One worry for Apple may be the changing telecoms industry. In the past, wireless operators boosted iPhone sales by offering close to $500 in upfront discounts to customers. That practice was especially common in the US and Japan, where Apple has over 40 per cent market share compared with 12 per cent globally. But those subsidies have increasingly been replaced with simpler monthly fees or full-price sales, which are more lucrative for carriers. The fact iPhones sell for an average of $657 worldwide, compared with $254 for Android phones, could deter consumers from buying Apple products, or it could boost short-term earnings due to lump-sum purchases.
Apple’s new products also have implications for suppliers such as Arm, Imagination, CSR and Dialog Semiconductor. Bloomberg estimates that at least 9 public companies earn over 40 per cent of their revenues from Apple. Moreover, a new generation of products bodes well for retailers. "Nothing gives us more pleasure than a cracking iPhone launch," says Dixons Carphone chief executive Sebastian James. "I think this is going to be a big one."
Broker Cantor Fitzgerald has a target price of $123 on Apple’s shares. It expects full-year sales of $181bn, giving EPS of $6.31, rising to $199bn and $6.86 in 2015.
