Are Apple's New iPhones Enough?

Apple took the stage this morning and unveiled two new iPhones. Unfortunately, there were no surprises. Everything was as expected. Still, the iPhone line has an undeniably better value proposition after the new releases.

iPhone 5C. Source: Apple.

iPhone 5S
Apple's new iPhone 5S may have the same form factor as its predecessor, but the smartphone still deserves some respect. Particularly impressive is the phone's A7 chip and fingerprint sensor.

A7 chip. If you're an iPhone 5 owner, the technology in your pocket is already getting old. The new A7 chip in the iPhone 5S "gives you CPU and graphics performance up to 2x faster than the A6 chip," asserts Apple's website. "Even more impressive, A7 makes iPhone 5S the first 64-bit smartphone in the world -- that's desktop-class architecture in a superslim phone."

To illustrate, Apple showed this slide at this morning's product launch.

Phil Schiller speaking at the September 10 Apple iPhone event. Source: The Verge.

Talk about exponential growth...

During the event, a preview of Infinity Blade III on the iPhone 5S ran effortlessly, with "nary a lag of stutter," according to The Verge.

Touch ID on iPhone 5s. Source: Apple.

Touch ID. According to Apple, only about half of smartphone users don't bother to set up a passcode to unlock their iPhones. That's certainly going to change for iPhone 5S users. Apple's new fingerprint sensor allows iPhone 5S users to unlock the screen by touching the home button.

The sensor, referred to as Touch ID, even scans your sub-epidermal skin layers. It will read your fingerprint in any orientation and the more you use it, the more it will improve.

Unlocking the iPhone is a task that users repeat dozens and dozens of times a day, if not more. The feature serves as a clear way to differentiate Apple's new high-end iPhone from the rest of the iPhone family.

iPhone 5c. Source: Apple.

iPhone 5C
The iPhone 5C is available in five different colors: white, pink, yellow, blue, and green. Most notably (and rightly so), it comes with a less expensive price tag than the 5S. The 5C carries an entry price of $99 with a two-year contract, compared to $199 for the 5S.

With the slower A6 chip, also found in the iPhone 5, it made sense for Apple to cut the iPhone 5 from the product line. The new lower-cost iPhone even beats the iPhone 5 on battery performance, with 10 hours of talk and Internet time versus eight hours on the iPhone 5.

A clear hierarchy
In removing the iPhone 5 and replacing it with the 5C, Apple has clearly identified a hierarchy among its iPhone product line. The iPhone 4S, at $0 with a two-year contract, is available in black and white, with a smaller display. The plastic-backed 5C is available in five different colors. Then there's the Touch ID-equipped 5S, available in silver, space gray, and gold. In line with their pricing, the 5S has the best chip (A7) and the 4S has the worst (A5), with the 5C right smack in the middle (A6).

Source: Apple website.

Notably, Apple's premium-priced iPhone and its mid-priced iPhone, for the first time, are both new smartphones. The combined value proposition for the two phones likely has a broader audience than it would if the mid-priced iPhone were an older iPhone 5. With the iPhone 5 gone, Apple can attract consumers unwilling to pay up for a 5S with a new, mid-priced 5C that has its own uniqueness.

Are the new iPhones game changers?
Even with a clearer hierarchy combined with fresh new designs in both its premium- and mid-priced iPhones, will the value proposition attract enough new customers to positively impact Apple's bottom line? After all, some analysts expected an unsubsidized price tag as low as $400 for the iPhone 5C -- $549 is considerably higher.

Is $549 a low-enough price point to attract a large number of new customers in the important Chinese market?

With no surprises and a more expensive iPhone 5C than many analysts anticipated, we would be getting ahead of ourselves if we expect Apple's revenue and earnings to soar on iPhone sales alone over the next year.

Fortunately, Apple's conservative valuation at today's prices doesn't call for meaningful EPS growth. On that note, a solid, fresh value proposition without any groundbreaking surprises or impressively low prices is likely enough to continue to reward Apple investors over the long haul.

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