Tough economy will hit Apple Watch more than iPhone 14, analyst says

Apple Watch Series 7 in (PRODUCT)RED

Investment bank JP Morgan has advised investors that the current economic situation means pricing is key, but more so for "discretionary purchases" like the Apple Watch, than for the iPhone 14.

Apple is expected to launch four new iPhones and three new versions of the Apple Watch at its September 7 event. Previous rumors have suggested that the iPhone 14 will remain priced the same as the iPhone 13, but that the iPhone 14 Pro models will increase in price.

Now investment bank JP Morgan says that it's still possible all iPhone 14 prices will increase, but it agrees that it's the Pro ones that will definitely be more expensive.

"With the inflationary pressures across the supply chain, consensus expectation is for price increases across the iPhone 14 product line up relative to iPhone 13," wrote JP Morgan analysts in a letter seen by AppleInsider. "We expect Apple could take a more nuanced approach, to maintain pricing for the lower-end iPhone 14 and iPhone 14 Max, while increasing it for iPhone 14 Pro and iPhone 14 Pro Max."

JP Morgan believes that the iPhone 14 range will still sell well, but also that it may mean Apple needing to emphasize options such as its Buy Now Pay Later service.

"Robust trade-in prices and broader roll out of Buy-Now-Pay-Later can drive robust volumes," it continues. "Apple offers trade-in prices in the wide range of $25-$600, and we expect robust trade-in offers to continue."

"Additionally, there are numerous credit card based alternatives for paying for iPhone purchases in installments," writes JP Morgan analysts, "but the average consumer still remains largely unaware of the BNPL plans. We expect a broader roll-out of BNPL as well as a greater focus on it with consumers can help with both switchers and upgraders."

However, JP Morgan believes that economic pressures are more likely to hurt sales of the Apple Watch Series 8 and the expected Apple Watch Pro.

"Pricing is a key watch-point in a tough macro [economy] which comprises inflationary pressures and pull back in consumer spending," says the company, "but we believe it matters more for Wearables which are considered more discretionary purchases relative to iPhone by consumers."

Separately, the expected Apple Watch Pro has been predicted to sell from $900.

In April 2022, JP Morgan cut its price target for Apple from $205 to $200, citing the tough macroeconomic conditions. It's maintaining that same figure, but does note that there are risks for investors.

Specifically, overall "economic conditions or shifting consumer demand could cause greater than expected deceleration or contraction" in the smartphone market. The company also says that Apple's increased participation in international markets could be affected by tariffs, and by local competitors being able to reduce prices.

JP Morgan also notes that in the longer term, there is a "modest risk" to Apple's share price if CEO Tim Cook leaves the company. However, the risk is "considerably lower relative to the past," and "we see a strong group of executives to support business performance without disruptions."

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8 Comments

Fidonet127

said about 1 year ago

I expect more consumers to hit the point, of do I really need it vs features, or replacement of getting too old for updates or batty not lasting long enough, for both the phones and the watches. The days of massive got of have new features are gone. I have the SE2 and Watch 4. The watch isn't just a watch, but helps us monitor our heath. O2 monitoring would be nice, but not enough for me to upgrade. Temperature would help, though BP and glucose would really knock it out. That said, my battery has bee complaining at times, though it could be the beta. Phone, I'll wait for the SE4 or something that has fingerprint reader.

dewme

said about 1 year ago

I suspect the upper bound of discretionary purchases is a bit higher for purchasers of the higher end Apple Watch versions. I’m talking the stainless steel versions with sapphire crystal, GPS, LTE, metal bands, etc. You know, the exact demographic a “Pro” watch is targeting.

One of the key drivers behind inflation is the fact that demand is still very strong and people are willing to pay more for products they truly desire. Apple feeds on that desire and after a while what was once viewed as discretionary becomes essential in buyer’s minds and budgets. I see plenty of tweens and teens sporting much higher end iPhones than the Xs Max I’ve been carrying around for a few years now.

Apple will do just fine.

larryjw

said about 1 year ago

How well these Apple products sell is really supply chain and product features issue. It's not so much an economics issue (aside from the standard question for users is are new features and functionality worth the money).

Apple customers are relatively flush compared to the general population and the even severe economic downturn is unlikely to affect the discretionary purchase decisions of those who buy the Apple Watch or the iPhone.

In my area, I'm still somewhat surprised how few Apple Watches I see in the wild. It's amazing to still see people awed when I make purchases using my Apple Watch. I don't see any indication that Apple Watch uptake will be harmed or improved by these new releases. Uptake will increase with more health-related features.

omasou

said about 1 year ago

Fidonet127 said:

I expect more consumers to hit the point, of do I really need it vs features, or replacement of getting too old for updates or batty not lasting long enough, for both the phones and the watches. The days of massive got of have new features are gone. I have the SE2 and Watch 4. The watch isn't just a watch, but helps us monitor our heath. O2 monitoring would be nice, but not enough for me to upgrade. Temperature would help, though BP and glucose would really knock it out. That said, my battery has bee complaining at times, though it could be the beta. Phone, I'll wait for the SE4 or something that has fingerprint reader.

You may be waiting for a very long time. But then again Apple added back a bunch of useless ports to the MacBook Pro, so hold strong /s

chadbag

said about 1 year ago

I have an Apple Watch 4 and an iPhone XS Max. I'd like to replace both this cycle (but not at launch). However, the watch is a higher priority for me as the watch 4 I have has really taken a dive down in battery capability. So I'll be looking at that -- trying to hit a good deal at the holidays or something.

My iPhone XS Max is soldiering on -- the battery is in the mid 80% range according to the battery report in Settings but it is easier for me to top off if necessary compared to the watch. We're involved in a home construction project that has gotten a lot more expensive than planned so I am holding back on phone upgrades until it becomes clear where we will be at the end of the project.

The wife has an 11 max and the kids have 12s (gotten through a killer mothers day upgrade deal from t-mobile a year and a half ago). So they don't need upgrades for a while.

I used to get a new phone every year with the excuse that as an iOS rooted SW engineer I needed to be on the cutting edge. Between the rise in ASP over the last 5 years and the fact I am no longer primarily an indie and so have a boss who sends me a phone every few years, I no longer want to afford new phones that often. Instead of passing my old phone down we've started to track each family member independently for phone upgrades.