The iPhone X could be the Grinch that steals Christmas, so some haters on Wall Street need to pipe down.
Apple Inc. (AAPL) is well on its way to flip Haterville on its head this holiday season with the debut of the iPhone X, which finally launched in stores Friday. For instance, this could be the first year apparel retailers post a fourth quarter sales decline since the recession, Morgan Stanley said in a note, as the iPhone X will “likely limit spending in other categories, especially apparel.”
Its new form factor, improved battery life and augmented reality applications position the iPhone X for a supercycle, Morgan Stanley’s Katy Huberty said. Given that — plus the iPhone X’s $999 price tag — specialty retailers like Abercrombie & Fitch (ANF) and department stores such as J.C. Penney (JCP) are facing significant headwinds at the hands of one small piece of consumer tech.
If Huberty’s estimate of 75 million new iPhone shipments in the fourth quarter is correct, Apple could absorb $30 billion of discretionary spending for the last part of the year with the iPhone X alone. Crazy.
Think about the logic here. How many gifts does your loved one need in addition to a smartphone that costs as much as a month’s rent in some cities?
According to Canaccord analyst Michael Walkley, the iPhone upgrade rate for the 2018 cycle will jump to 32.4% of consumers from 26.8% a year earlier. iPhones have always been expensive, but more people are going to upgrade this one because of hot new changes.
Walkley said he agreed with the assertion that this phone could throw a wrench in holiday retail spending. The analyst thinks relatively tepid iPhone 8 sales, down 20% from iPhone 7 sales at their release a year earlier according to Walkley’s math, suggest Apple fans are delaying a purchase until they can get the iPhone X.
The pre-order launch for the iPhone X was so strong that shipment lead times surged in the first hour of availability to reach five to six weeks. Clearly, there’s no problem on the demand side, Drexel Hamilton analyst Brian White said. Piper Jaffray analyst Mike Olson agreed — “As far as expectations for the iPhone X, we’re very confident,” he said.
Olson estimates there are 330 million iPhone owners with a model two or more years old. That means a huge group is “ripe for an upgrade,” Olson said. That huge group could be ready to upgrade during the holidays.
It’s the supply side that has raised some concerns on Wall Street about the iPhone X’s holiday sales potential, as Apple deals with production ramp constraints. That’s an argument where Wall Street pessimists have latched on, noting that Apple has attempted the impossible or asserting the new model will flop on lofty expectations.
Guidance from Apple implies that supply is fine, Olson noted. “It is going to be a strong cycle,” he said.
And while we recognize that six weeks is a long time to wait for a new phone and Apple has faced some production trouble with the model, it’s important to remember that this is still Apple. We’re talking about a company that has put their phones in more than 700 million hands globally, not some upstart tech company promising the world and under-delivering.
“Apple seems to be really confident about shipping and delivery,” said CrispIdea analyst Shejal Ajmera. “That shouldn’t be an issue now.” That confidence shows up in its latest guidance. Apple expects as much as $87 billion in sales in its holiday season quarter. That was above the high end of many analyst forecasts, going a long way to squashing any concerns over a production bottleneck.
And don’t forget what Apple CEO Tim Cook himself said following the company’s blowout fiscal fourth quarter results this week: “This is going to be the best holiday season yet.”
So, if you still think that no one will buy the iPhone X because it’s too pricey, or if you expect this year’s holiday shopping season to truck along like any other, you’re probably one of the dumbest on Wall Street.
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