Apple’s Modest iPhone 14 Upgrades Seen Leading to Modest iPhone Growth in Fiscal 2023

On Sept. 7, Apple AAPL held its annual product showcase, where the firm announced the launch of new iPhones, Apple Watches, and AirPods. Apple launched four new iPhone models: the iPhone 14 ($799), iPhone 14 Plus ($899), iPhone 14 Pro ($999), and iPhone 14 Pro Max ($1,099), with pricing unexpectedly consistent with equivalent models from the prior year. We had expected some price increases given recent inflationary pressures, but we think Apple was able to hold prices steady by reusing the same A15 Bionic processor in the base iPhone 14 model as the iPhone 13, while only the iPhone 14 Pro received the latest A16 Bionic processor. Consequently, we think the firm’s product gross margins should remain relatively steady in the mid-30% range. Beyond the typical chip, battery, and camera enhancements, we equate many of the updates to those of past iPhone “S” models that were more incremental in nature. While 5G penetration still has room to grow, we think Apple’s fiscal 2023 iPhone growth is likely to be more muted than the growth implied by the current stock price. We are maintaining our $130 fair value estimate for narrow-moat Apple and see shares as overvalued.

Despite softer smartphone demand (especially in China), Apple’s recent iPhone results have proven more resilient. However, with recessionary fears, inflationary pressures, and the relatively incremental nature of the iPhone 14 versus the iPhone 13, we expect Apple’s fiscal 2023 revenue to be up only 3% year over year to nearly $212 billion.

Battery life continued to expand, although the iPhone 14 Pro with the A16 chip will enjoy more of the uplift as this chip is manufactured on TSMC’s 4-nanometer process technology (versus the A15 made on the 5-nm process). Apple also swapped the mini variant from the iPhone 13 (5.4-inches) with a “plus” iPhone 14 variant that is 6.7-inches. The Pro once again has three cameras (ultrawide, wide, and telephoto), with base and plus models having dual-camera setups.