With iPhone sales slowing, Apple could use a new product category to goose its business and stock price. Investors now are focused on the company's rumored mixed-reality headset, which could debut in late 2023.
The headset reportedly would combine elements of augmented reality and virtual reality, and has faced repeated delays. Augmented reality overlays graphics and text in a person's field of view. Meanwhile, virtual reality immerses people in an all-digital environment for gaming and watching surround videos.
Mass shipments of the Apple headset have been pushed back to the second half of 2023, TF International Securities analyst Ming-Chi Kuo said Dec. 4 on Twitter. He attributed the delay to software-related issues.
Kuo is forecasting Apple headset shipments of less than 500,000 units in 2023. Further, the first-generation device could cost between $1,000 and $3,000.
Augmented, Virtual Reality Attractive Market
Analysts see the mixed-reality headset as a steppingstone toward eventual mass-market smart glasses.
Apple is likely to announce the computer headset at its Worldwide Developers Conference in June, Loop Capital Markets analyst John Donovan said in a recent note to clients. Also, he sees a product launch in October or November. Donovan rates Apple stock as buy with a price target of 180.
Apple hasn't introduced a major new product category since April 2015 when it debuted the Apple Watch smartwatch.
"Overall, we see AR/VR as an attractive longer-term opportunity for Apple," Morgan Stanley analyst Erik Woodring said in a recent note to clients. "While the market will be small or immaterial to Apple's P&L (profit and loss statement) initially, we believe this could grow over time as a content ecosystem is built out to have broader-reaching impacts on commercial, industrial, education, and gaming/social use cases."
Apple Stock: IPhone 15 Handsets To Sport New Design
Another major product set for release in the year ahead is Apple's iPhone 15 smartphone family. The handset series will be the company's 17th-generation smartphone and its fourth-generation 5G-enabled handset.
The iPhone 15 likely will have a major redesign and include a greatly improved camera system. The new iPhone, due next September, could use a state-of-the-art image sensor from Sony. It also could come with vastly improved optical zoom capability, based on news leaks.
The iPhone 15 "will begin a new three-year design cycle" for Apple's smartphone family, Loop's Donovan said in a report.
Rumors swirl regarding the iPhone 15 switching from Apple's proprietary Lightning charger and data transfer cable to an industry-standard USB-C cable. New regulations in the European Union are forcing Apple to make the change. However, the move to USB-C will improve data transfer and charging speeds for the iPhone, analysts say.
Moving Production Out Of China
Meanwhile, Apple has accelerated plans to diversify its manufacturing away from China, after disruptions in production there in November. Hampering Apple's iPhone 14 Pro supply are Covid outbreaks and worker protests at the company's main iPhone production plant, located in Zhengzhou, China. Contract manufacturer Foxconn runs that factory.
Apple stock analysts on Wall Street have slashed their iPhone sales forecasts for the December quarter because of handset shortages related to the factory issues.
Apple plans to shift more production to India and Vietnam to lessen its exposure to China, the Wall Street Journal reported.
"While Apple started to diversify hardware assembly into markets like Vietnam and India (for Apple Watch, AirPods and legacy iPhones) a few years ago, we do believe this latest flare-up in China likely accelerates Apple's diversification timeline," Morgan Stanley's Woodring said. "This will likely take years and billions of investment (likely weighted toward Apple's supply chain partners)."
Elsewhere at Apple, the company has postponed the launch of its rumored electric car by about a year to 2026, Bloomberg reported. It also has decided not to make the car self-driving in the first iteration, the report said. Apple is aiming to price its first car at less than $100,000.
Apple's car initiative has slowed amid a revolving door of senior executives leading the project.
App Store Changes Ahead
Another continuing story that's hanging over Apple stock is more potential legal and regulatory troubles. These issues mostly target the company's services business and the App Store in particular.
Critics have accused Apple of anticompetitive behavior with its App Store policies. Analysts see Apple forced into taking third-party payments, allowing third-party app stores, and permitting direct communications between app developers and their customers.
The European Union's Digital Markets Act is likely to force Apple to open up its iOS devices to third-party app stores and payment systems. So-called digital gatekeepers like Apple will have to comply with the law by March 2024.
Apple is planning to allow alternate app stores on iOS in Europe in response to the EU law, Bloomberg reported.
Evercore ISI analyst Amit Daryanani said he sees "minimal impact" to Apple's business from allowing third-party app stores. That's because Apple device users are likely to take the path of least resistance and continue to use Apple's App Store, which already has users' payment information, he said in a note to clients.
However, Apple might have to lower its 30% standard commission fee on app sales to stay competitive with third-party services, Daryanani says. He rates Apple stock as outperform with a price target of 190.
Morgan Stanley's Woodring concurs. He estimates that the app store changes could lower Apple's revenue by 1% and earnings per share by 2.5% in a worst-case scenario.
Apple Stock: A Big Player In Advertising?
Meanwhile, Apple could offset the lower revenue from the App Store by ramping up its advertising business.
MKM Partners analyst Rohit Kulkarni said Apple will increase its Apple Search Ads on the App Store in 2023. Further, Apple ad revenues may exceed $4 billion in 2022, vs. $2 billion in 2021, Kulkarni said in a note to clients.
"In addition to Apple Search Ads, Apple is rumored to be pondering the implementation of ads on Maps and Apple TV in 2023," the Apple stock analyst said. "Apple could be a significant player in advertising in 2024."
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
