Apple Keynote Summary: 2018
Apple's September 2018 event introduced three new iPhones (XS, XS Max, XR) and a redesigned Apple Watch Series 4. The event was tightly choreographed and the products were predictable, but the lineup tells you a lot about where Apple's pricing strategy is going.
Apple's September 2018 event was held at the Steve Jobs Theater on the Apple Park campus and lasted just under two hours. Tim Cook walked through three new iPhones, a redesigned Apple Watch, and a long list of small refinements. The event was tightly choreographed in the now-standard Apple way, and the surprise factor was almost zero because every product had leaked extensively. The interesting story isn't what was announced. It's the strategic shift the lineup represents, and the pricing decisions that go with it.
Three iPhones, Three Price Tiers
iPhone XS at $999. iPhone XS Max at $1,099 to start. iPhone XR at $749. The XS and XS Max are the premium flagships, with OLED screens, dual rear cameras, and stainless-steel frames. The XR is the "mainstream" flagship, with an LCD screen, a single rear camera, and an aluminum frame, but the same A12 Bionic chip and the same Face ID system.
This is the first year Apple has shipped three iPhones at three distinct price tiers as a deliberate strategy. The framing in 2017 was that the iPhone X was the future and the iPhone 8 was the legacy. The framing in 2018 is that there's a tiered iPhone family the way there's a tiered Mac family. The XS is the "Pro," the XS Max is the "Pro larger," and the XR is the standard model.
The strategic implication: Apple is segmenting the iPhone customer base more aggressively. The buyer who would have bought an iPhone 8 at $699 in 2017 is now being asked to pay $50 more for an XR, or stretch to $999 for the XS. The average revenue per iPhone is going up, even as the unit count stays roughly flat. Apple has been signaling this in earnings calls for two years and the September 2018 event is the product-level execution of it.
The A12 Bionic Story
The A12 is the first chip Apple has shipped on a 7nm process, ahead of every other phone manufacturer. Single-core performance is roughly 15% faster than the A11. The Neural Engine is reportedly 9x faster on ML inference workloads, with on-device processing that closes the gap on what previously had to round-trip to the cloud.
The bigger story is the gap to Android. The A12 Bionic in benchmark tests beats the Snapdragon 845 by a meaningful margin. The performance lead Apple has built up over the Android flagship chips has gone from a small advantage in 2015 to a real generational gap in 2018. That gap is the part of Apple's strategy that's hardest for competitors to close, because it requires the kind of vertical integration that only Apple has at this scale.
Apple Watch Series 4
The Series 4 is the first Apple Watch redesign since the original. The display is 30% larger in the same case footprint (the bezels are dramatically thinner), the case is slightly thinner overall, and the crown has haptic feedback. The headline feature is FDA-cleared atrial fibrillation detection through an updated heart-rate sensor, plus an ECG capability that's the first of its kind in a consumer wearable.
The strategic positioning is clearer than ever: the Apple Watch is becoming a healthcare device first and a smartwatch second. The marketing time spent on the heart features versus the fitness features versus the notifications versus the apps was meaningfully tilted toward health. Apple's ambitions in healthcare are large and the Series 4 is the consumer-facing edge of that strategy.
What Wasn't Announced
No new MacBook. No new iPad Pro. No AirPods 2. No new HomePod. The September event has hardened into an iPhone-and-Watch event, with the rest of the Apple product line saved for the October event Apple typically holds for the Mac lineup. That's an organizational decision that simplifies the September event for both producers and audience, but it also makes the September event feel narrower than it used to.
The Real Takeaway
2018 is the year Apple stopped trying to ship a single iPhone for everyone and started shipping a tiered iPhone family. The pricing changes (XS up $50 from the X, XR replacing the 8 at $50 above the 8's price) are subtle but consistent. The strategic bet is that Apple can grow average revenue per iPhone meaningfully without losing significant unit volume, by adjusting the lineup to capture more dollars from the buyers who were going to pay anyway.
Whether that bet works depends entirely on whether the XR sells at a price point above the iPhone 8's. The XR is the new mainstream and it's the test of whether Apple's customer base will accept the new floor. Six months from now, the iPhone 8 will be discontinued and Apple's lowest-priced new iPhone will be $749. The question is whether the buyers who were paying $699 for an iPhone 8 last year will pay $50 more this year, or whether they'll buy a refurbished XR at lower volumes for the company. Worth watching the FY19 results to see how it plays out.
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