New CEO Ternus Launches iPhone 18 Pro on September 9 — Can Apple Reverse Q3 China Miss Before Jackson Hole?

TradingKey - John Ternus has less than a month to become familiar with Apple's inner workings before he will have to provide leadership and direction throughout the company. A few days after he assumes his role, he will have to prepare for the launch of the iPhone 18 Pro. This will test Apple’s ability to successfully manage the transition of new leadership as it restructures its China strategies and faces challenges of slowing Services growth. The company is strong financially, but the new CEO will have to face supply constraints and higher costs for components as he competes with stronger players in the market that is most important to Apple.

The iPhone 18 Pro will come with many new features including a variable aperture camera, a smaller Dynamic Island with Face ID that is supported by under-display technology, the A20 chip, and an offer for the new color Dark Cherry. These updates may improve Apple’s ability to command a premium price for its products, but the company will need to see evidence of demand in China and confidence that it can continue to charge what it wants for its products.

Expectations for the market will be impacted by the Jackson Hole meeting that takes place a week before the launch. The launch will occur after the Federal Reserve provides its assessment of the economy on August 21-22. The review may have an impact on the expected spending and valuations for technology and how consumers perceive the economy, and in turn, Apple.

Strong iPhone Sales Mask China and Services Concerns

Greater China revenue hit $18.8 billion versus the $19.5 billion expected. Greater China is facing more local competition from Xiaomi and OnePlus and are likely seeing some consumer demand delay for the iPhone 18 Pro. Early preorder data will be critical to see if they were able to alleviate some of those concerns.

The decline in Services revenue growth, which reached 12 percent, likely signals a new floor for this segment. As Services offer higher margins for Apple, a continued slow down will likely hurt revenue growth for Apple. Ternus needs to have a plan in place to deal with the regulation of the App Store growth of services and subscription control in China, and more importantly how Apple will maintain revenue and margin growth.

iPhone 18 Pro Is Ternus's First Major Statement as CEO — It Must Signal Innovation Momentum

The iPhone 18 Pro's slide describes potential solutions to China and services issues. A variable aperture camera system is the most unique feature. The system allows Photographers/content creators to control how much light the camera lets in as well as control how much background blur they want to have in an image. This advancement closes the gap between a phone and a DSLR. Samsung and other Chinese companies are releasing devices aimed at more prosumer and professional markets, and this feature will help Apple in that space.

The solution to Face ID allowing a smaller Dynamic Island is a result of years of R&D and removes another feature that Android uses to poke fun at the iPhone's design. This new Dynamic Island is smaller which shows tangible improvement, but the even bigger improvement is the A20 processor which has faster performing hardware while also moving Apple further into their belief of on-device processing, options rather than the AI cloud route. Dark Cherry color and a new lighter titanium case have been rumored as part of the design and are expected to be new options.

For the first major iPhone release as CEO, Ternus has a lot of personal skin in the game. The iPhone 18 Pro addresses a lot of the questions around Apple's innovation while also addressing user's demands. If Ternus can prove that the 18 Pro is more than just a marginal upgrade, then Apple's stock stands a lot to gain for the Holiday selling season. Otherwise, the reigning sentiment surrounding Apple's dwindling innovative nature and settling into a slow growth hardware business all backed by the growing services arm remains.

China Weakness Is the Real Test — Can Upgraded Features Drive Rebound?

Apple is not suffering from a lack of demand in China. It suffers from intense competition and a lack of differentiation at a time when local companies (e.g, Xiaomi, OnePlus) offer similar premium features at lower prices. Apple's iPhone 18 Pro offers a camera with variable aperture and an AI capable chip (A20) that could justify its premium price.

However, there’s a problem that’s not unique to Apple. Consumers may be willing to buy the iPhone 18 Pro, but they will only do it if they are confident enough about the state of the economy. There, Jackson Hole matters. When Chair Powell speaks at Jackson Hole, if he signals easing of global economic concerns, much of the world, including China, will become more confident to buy the new iPhone. But if Powell signals uncertainty about economic policy, the most price- and macro-sensitive of consumers, Chinese consumers, may become the most likely to hold off on purchasing the iPhone.

Services Slowdown Needs to Reverse — But Ternus May Face Regulatory Headwinds

At 12%, double digit growth for Services is positive, but it is a decline from the lower 15-20% growth rates Services had November 2020 - June 2021. Services growth is likely limited by (i) App Store regulatory changes in the EU and (ii) consumer subscription limits. Subscription services growth is starting to slow because customers in the U.S. and Europe are getting to the end of the limit of how many subscription services they are willing to pay for.

To address the rapid growth of its Services segment, Ternus needs to start promoting new categories (fitness, financial services, enhanced cloud storage) and improve value propositions against the competition. This is more of an execution challenge than an innovation challenge. Ternus's operational and product management experience should help with this challenge. However, he cannot solve regulatory constraints by himself. In fact, policy adjustments will require Apple to persuade governments and, in the end, have a different approach to its App Store model.

Apple Technical Setup: Rising Trendline Support Holds, But Macro Uncertainty Caps Near-Term Upside

Apple is currently trading just above its rising trendline and horizontal support at $300.57 on its 2-hour chart. After the sell-off that followed the earnings release and served to push the stock price down by 7%, buyers recaptured this level and started an early recovery. Despite the early recovery, buyers have a good entry opportunity due to the trendline support and the positive work done by the bulls on the recovery efforts in the last period.

Apple Price Chart - Source: Tradingview

The first challenge for buyers is $308.66. An individual climbing above this level would provide further evidence for the recovery and bring the overhead resistance level of the moving average across $311 and $313 into focus. Apple remained below the 50 period moving average at $311.00 and the 100 period at average at $313.02.The recovery efforts would not be substantiated until buyers actually crossed above this level and moved within this area.

The focus of the recovery efforts is around $308.66 and $313. The level relative to $315.86 is financially important because a crossing of $315.86 would substantiate recovery efforts and make $322.82 a focal level. The recovery efforts will cease if $300.57 breaks, a rising trendline breaks, and $303.11 and $286.41 come into focus.

Bottom Line: August 16 Weekend Outlook

Slowing service revenue and weaker demand for Greater China goods leads Apple into September with a challenge. However, the launch of the iPhone 18 series on September 9 might bring demand back thanks to the new camera, chip, and design improvements. The Jackson Hole Symposium on August 21 and 22 is the major macro risk. For now, AAPL is holding its ground at $300.57. 

If AAPL can break past $308.66 and the EMA zone of $311 to $313, we could see a rally to $315.86 and $322.82. Investors are likely to wait for the Fed’s guidance and early pre-order data to see if they want to rethink their positions. Money management is always encouraged, no investment advice.