• While the Apple event went largely as expected, the new iPhone lineup should provide upside to both iPhone units and ASPs over the next year.
• Apple, once again, has shown their mastery of pricing tiers, which will extract more revenue per customer. The iPhone lineup now ranges from $449 to $1449 (an unweighted average of $875), compared to last year’s range of $349 to $1,099 (an unweighted average of $692).
• As we model the mix of the new iPhone lineup, factoring in 9 new phones with price points above the FY18 ASP ($745), we’re finding it difficult to keep the overall ASP below $800. For conservative modeling, we expect 12% to be Xs Max, 9% to be Xs, and the most popular sku to be the Xr at 38% of units.
• We are raising our iPhone ASP estimate for FY19 to $791 (up 7% y/y) vs. the Street at $756 (up 2% y/y).
• The iPhone franchise is better-positioned for sustainable growth (0%-5%) over the next several years, given Apple continues to earn recurring iPhone customers with innovative hardware and software.
• The new Apple Watch, with a 35% larger display and additional health-related features, increases our optimism in the potential of Apple’s wearables category, which currently accounts for ~5% of revenue and grew 60% in Jun-18.
• Updated AirPods and iPads, along with the AirPower charger, were noticeably missing — a non-event in the context of today’s step forward for the iPhone franchise.

Larger Screens Are Good for ASPs and Unit Growth

Display size increases have historically lead to upside in units and ASPs. The iPhone Xs Max’s display size is 26% larger than the previous largest iPhone display (iPhone X). This is the largest increase in screen size since 2014 when the iPhone 6 display jumped 35% from the iPhone 5s. At the time (FY15), consumers responded to the larger display size, propelling a 37% increase in iPhone units (up from 13% in FY14). ASPs also moved higher, growing 12% y/y ($599 to $669).

This increases our confidence in our FY19 iPhone unit growth of 3%, compared to the Street at 0%. Separately, we are now modeling for a 7% ASP increase in FY19 (to $791), compared to the Street at 2% ($756). If the iPhone units reach FY15 levels of 231M units, overall iPhone units would grow 6% in FY19. This comparison increases our confidence in our current 3% iPhone unit growth target.

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