Apple Inc. (NASDAQ:AAPL) releases its new iPhones every fall. The company traditionally keeps previous generation models available as a lower price alternative to the brand new flagship it launches. But according to a report from KGI Securities, this year, the iPhone X will be different.
The company is predicting that Apple will flat out discontinue the original iPhone X when the 2018 model arrives. This move — as opposed to discounting the original phone — would avoid damaging the premium brand (and pricing) Apple is building around the iPhone X. It would also help to avoid cannibalizing sales of the new iPhones for 2018.
With iPhone sales being far and away the primary driving force behind AAPL stock, this predicted change in strategy could have real implications for investors.
KGI Report: No Discounted iPhone X in 2018
The iPhone X was a gamble for Apple.
There were major technological leaps and challenges to go along with them. iPhone X had the first OLED display in an iPhone, was the closest thing ever to a bezel-free iPhone and jettisoned Touch ID in favor of Face ID.
But from an investor point of view, the biggest gamble was the price. Instead of the $699 for a new iPhone (or $799 for the Plus version), the iPhone X started at $999. If consumers proved resistant to the new $999 price tag, the anticipated record-smashing iPhone sales for 2017 might instead be a bust, taking AAPL stock with it.
Thus far, the new iPhone’s cost does not appear to have been a barrier. And Apple could be determined to preserve that high price, along with its higher profit margins. KGI Securities analyst Ming-Chi Kuo released a research note (reported in MacRumors) that predicts the company will discontinue the current iPhone X in the fall, when it introduces the 2018 iPhone X.
Apple’s current strategy is to keep the previous generation iPhone at a discount. When the 2017 iPhone lineup was announced, the previous year’s iPhone 7 remained available, at a discounted $549 price.
The move makes sense for Apple. It keeps a decent option available at a more affordable price. And its the closest thing the company offers to a mid-range smartphone. After a year in production, the manufacturing cost for an iPhone tends to drop as well, with lines moving smoothly and parts costs coming down.
So why would Apple discontinue the iPhone X rather than continue to offer it at a discount?
Preserving the iPhone X Brand
Apple has been positioning the iPhone X as a premium brand. Ming-Chi Kuo points out that discounting the price of a previous generation model would “hurt product brand value.”
In other words, Apple wants the iPhone X to remain a flagship smartphone that commands a premium price. Selling a previous generation model at a discount makes it tougher to convince people to pay that premium price, and could cut into the perceived status of the iPhone X.
In addition, Kuo is predicting Apple will release a new 6.1-inch iPhone (the successor to the iPhone 8) with Face ID, but an LCD display instead of OLED. A discounted previous generation iPhone X could cut into sales of this new iPhone.
Of course we’ll have to wait eight months to find out if this prediction is correct, but Ming-Chi Kuo has a solid track record when it comes to Apple products. If he’s right, it appears that Apple is going all-in on keeping the iPhone X an ultra-premium flagship, and riding its hefty price tag to higher revenue and higher AAPL stock prices.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
