Sure, Apple might like to be able to keep increasing iPhone prices. But it might also have to.
That’s the argument in a Monday not from Raymond James analysts, who reiterated their “market perform” rating on the Barron’s Next 50 company’s shares. “We think Apple is struggling with the rising cost of adding new features, necessitating higher iPhone prices,” they wrote.
It’s clear why Apple (AAPL) would be happy to increase iPhone prices on average, giving customers willing to pay up for the latest and greatest an option while maintaining other, cheaper, offerings to get some new people in the door. Still, some observers have wondered whether consumers are souring on high-end phones.
“We think iPhone’s average selling price increase is a combination of ‘because they can’ and ‘because they have to,'” the analysts wrote.” Clearly, some percentage of the iPhone user base will be willing to pay much higher prices, and Apple is smart to apply such price discrimination.”
“But we think part of the reason for the higher prices is also because component costs aren’t coming down.” As a result, they wrote, “Apple has to increase pricing to add new features.…If you have to increase price, the trick of course is to add features that a majority of customers are willing to pay for.”
The analysts don’t think Apple has managed that with its latest offerings. “iPhone X didn’t provide much incremental value aside from aesthetics. It’s a fantastic phone, no doubt. But iPhone 8 possesses almost the same functionality (albeit with a different screen and a different method of unlocking the phone), for a much lower price.”
Their takeaway: They’re waiting to see what changes to the iPhone selection Apple announces. “We don’t expect the stock to perform well until the new lineup is released,” they wrote. (Apple’s shares, near flat Monday morning, have just outperformed the S&P 500 in 2018.)
Credit: www.marketwatch.com /