'iPhone 7 Surprises,' Says Citi

Apple Inc. (NASDAQ: AAPL) announced updates to its iPhone and Apple Watch lineup, and Citi is "surprised" with higher price point of iPhone 7 Plus, while terming it as "slight positive" along with the launch of AirPods.

iPhone 7

Apple priced iPhone 7 Plus $20 higher than its predecessor and launched wireless headsets called AirPods, starting at $159. Starting price for iPhone 7 is the same as iPhone 6S at launch ($649), while iPhone 7 Plus is starting at $769 (vs. $749 for 6S Plus).

"We believe investors will view this as a positive given the higher anticipated gross margins on the iPhone7 Plus and wireless accessories will help to offset the higher BOM," analyst Jim Suva wrote in a note.

Related Link: Apple's iPhone 7 And Series 2 Watch: It's What's Inside That Counts

The iPhone 7 features advanced camera functions, including dual cameras for iPhone 7 Plus; improved graphics and processing performance; longer battery life at two more hours than the 6S; and more memory configurations, with the newer 256GB model and the starting model at 32GB.

The device also possesses dual stereo speakers, improved display, Force Touch added to the home button, water and dust resistance, and the headphone jack has been removed for the newer headphones to connect with the lightning connector.

The iPhone 7 will be available for preorder on Friday, with shipping and store availability in more than 25 countries (double the number of countries selected for iPhone 6S' launch) on September 16.

Apple Watch Series 2

Meanwhile, the Apple Watch Series 2 is "swim proof," includes a built-in GPS, faster processor, brighter display and a product partnership with Nike Inc (NYSE: NKE) especially targeted toward runners. The Apple Watch Series 2 will be available for $369, while Series 1 will be available with an updated processor for $269 and available in stores September 16.

Apple also announced that Apple Music now has 17 million paid subscribers, up from 15 million in June.

Another highlight was Nintendo Co., Ltd (ADR) (OTC: NTDOY)'s "Super Mario Run" gaming app designed especially for iOS "tap" function and will be coming to iOS devices in time for the holiday. The Pokémon Go app is also coming to the Apple Watch.

Suva maintains his Buy rating on Apple shares with target price of $120, a potential return of 11 percent over Wednesday's close of $108.36.

In Thursday's pre-market session, Apple was seen down 0.42 percent at $107.90.

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