The launch of Apple Inc's (AAPL - Get Report) hotly anticipated iPhone X was largely "disappointing," offering a product that "lacks incremental functionality" to justify a $999 price tag, said KeyBanc analysts said in a note late Tuesday.
The iPhone X "offered little that [analysts] view as compelling enough to justify a $300 premium to the iPhone 8," KeyBanc wrote. That raises concerns that Apple will not be able to provide incremental upgrade activity in future product cycles for iPhone models.
Also of concern for KeyBanc is gross margin uncertainty surrounding the iPhone X. Apple's current Q4 guidance has iPhone X sales in line with current iPhone models, but KeyBanc said the new phone's "high price...reflects a significant increase in costs that will drive its gross margin for the device slightly below corporate average to start."
The highlight of Apple's Tuesday product launch was the Apple Watch 3, analysts said, which offers "potential for sustained growth." The Watch could drive increasing demand given its growing functionality, specifically regarding health and wellness.
Looking forward, KeyBanc predicted fiscal 2018 earnings per share will increase to $11.07 from $10.84, driven largely by iPhone 8 and 8 Plus models.
KeyBanc kept a "sector weight" rating on Apple. Shares were down 0.6% to $159.95 in early trading on Wednesday.
Video: Get Your First Look at the Futuristic Apple iPhone X
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