Last fall, Apple Inc. (NASDAQ:AAPL) came under fire for the lofty price of the iPhone X, which started at $999. That price was blamed for a decline in iPhone sales in Q1, instead of the hoped for big boost. With AAPL stock still dependent on iPhone performance, a noted Apple analyst is claiming the company will be more “aggressive” in pricing the new iPhone X follow-up this year.
ASP — or average sales price — has helped to save the day for investors, but Apple would really like to see the number of new iPhones sold in the next generation to take the leap that failed to materialize after the 2017 launch.
Analyst Says Apple to Adopt “Aggressive Pricing” for new iPhone X
Noted Apple analyst Ming-Chi Kuo (now working for TF International Securities) released a new research note that was obtained by MacRumors. In it, Kuo says AAPL is hoping to boost sales for the 2018 generation of iPhones by cutting prices compared to last year’s iPhone X.
“We forecast that Apple will adopt a more aggressive price policy for the following reasons: (1) concern over the negative impact of a higher price in a mature smartphone market on selling momentum, (2) improved cost structure, which is mainly attributed to assembly yield improvements of end product & 3D sensing and cost reduction of components, and (3) increasing users of Face ID benefiting the promotion of the Apple service and ecosystem.”
In other words, Apple is trying to avoid the new iPhone X model(s) from underperforming in terms of sales.
The company wants to keep momentum — a key factor for AAPL stock value — which is tough enough in a maturing smartphone market without also being the most expensive choice by a large margin. Costly components like the TrueDepth camera had been blamed for being production bottlenecks and contributing to the iPhone X’s high price. Kuo suggests that those manufacturing challenges are now resolved and the component costs are coming down, which will help Apple to achieve the price reduction.
And finally, in addition to boosting revenue, more sales of the new iPhone X models means more Apple users will have access to Face ID. That brings uniformity back to the iOS ecosystem, so app developers can take full advantage of the feature and the TrueDepth camera system.
Pricing Prediction for the New iPhone X
Ming-Chi Kuo predicts Apple will charge between $800 and $900 for the second generation iPhone X. The expected new iPhone X Plus would go for between $900 and $1,000. And the budget version of the iPhone X, with a 6.1-inch LCD display instead of OLED would be priced between $600 and $700. Kuo also thinks the company will release all three in September, instead of the staggered release of 2017.
This seems like a reasonable strategy. Flagship competitor Alphabet Inc’s (NASDAQ:GOOGL) Pixel 2 XL starts at $849, while Samsung’s Galaxy S9+ starts at $840. That would put the second generation iPhone X in the same price ballpark as other flagship smartphones, instead of costing $150 more. It still offers an upgrade option for those looking for a bigger or more exclusive device in the new iPhone X Plus.
If correct, that pricing means Apple’s ASP for iPhones will likely take a hit as the next generation of iPhones hits the market in September. However, if more consumers opt for the new iPhone X and iPhone X Plus, ASP could still be maintained at or near the current record levels ($791 in Q1).
And if a high ASP were combined with higher iPhone sales numbers, the effect on Apple revenue and AAPL stock would be dramatic.
The pricing is just a prediction at this point, but Ming-Chi Kuo has connections high in Apple’s supply chain and a proven track record. We’ll find out in September of he called this one right, but it does seem like a logical move for AAPL to make.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.