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Apple Roundup: Music, App Store Monopoly, Analyst Opinion

In yet another sign that Apple is moving away from a hardware-centric model to one focused on services, the company has signed a deal with ecommerce giant Amazon AMZN to allow Alexa, its accomplished personal digital assistant powering its Echo voice controlled speakers, to launch and control Apple Music. The agreement benefits Apple by helping it reach a wider cross section of people through Amazon’s popular device (its own HomePod hasn’t done as well as expected). For Amazon, it brings a rapidly growing content portfolio and an affluent user base (the part of it that wasn’t already using Amazon that is) into its own ecosystem. We still know very little about the popularity of Apple’s lowest end iPhone after analysts said that their channel checks indicated slower-than-expected sales, Apple suppliers (mainly exposed to XR) Qorvo and Japan Display cut forecasts, Apple agreed to subsidize the XR in Japan and Apple product marketing VP Greg Joswiak said that it was the most popular device every day since its launch. As Eric Jhonsa of The Street points out, Joswiak’s comments compare the XR with the XS and XS Max separately and not together, so it may not actually be doing as good as the flagship phones and second, the fact that the XS and XS Max were launched before the XR, so the initial demand for those devices was already met by the time XR launched. For now, it makes sense to remain cautious about iPhone sales while recognizing Apple’s growing potential in services, especially since the company has stopped providing granularity on device sales. She says that if Apple tries moving production out of China, there would be “significant demand and unit headwinds.” If it stays in China and passes on increased tariffs to consumers it would raise prices ($60 to $160 more per iPhone XS, for example).If it absorbs the cost itself, there would be a -$1.00 impact on earnings at a 10% tariff rate and a -$2.50 impact on earnings at a 25% rate. Asking its manufacturing partners to absorb some of the increased cost might be a workable solution, especially since Apple wouldn’t be the first electronics company doing it.

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