Apple Inc. (AAPL) may see its smartphone average selling price (ASP) drop as it prepares to launch a new batch of iPhone models, but that’s not necessarily a bad thing, according to one team of analysts on the Street. (See also: Apple Working on Foldable iPhone for 2020: BofA.)
Earlier this year, Cupertino, California-based Apple reported lower-than-expected iPhone sales growth in the most recent quarter, letting down investors' hopes for an iPhone "supercycle" and igniting fears over weaker demand for the company's more expensive devices. In the first quarter of 2018, year-over-year (YOY) iPhone unit sales dropped 0.9% to 77.3 million units, compared to the consensus estimate at 80.2 million units. The drop-off in unit sales was slightly offset by a boost in the iPhone ASP at $796, reflecting a more than $100 increase from the average iPhone price last year.
On Monday, RBC Capital Markets analyst Amit Daryanani wrote a research note indicating that the Silicon Valley giant could revamp iPhone sales growth by offering a wider array of pricing options. “The most interesting dynamic to watch will be pricing,” stated Daryanani, “specially considering the limited success iPhone X had with $1,000+ ASP." He expects Apple's next generation of phones to be priced at $700+, $899 and $999, which the analyst indicates will effectively lower the average ASP but will drive a stronger unit growth.
A Budget Friendly iPhone X
The analyst indicated that a new budget friendly version of the iPhone X, with an LCD screen instead of an OLED screen and an estimated price starting around $700, could drive the highest volumes, or about 35% to 50% of volume. “Overall, we think the focus this cycle will be around Apple’s ability to segment market and expand its installed base," wrote the RBC analyst.
Daryanani also highlighted Apple's new focus on its services segment as it hedges against slowing demand for its hardware. The Street has repeatedly applauded the tech titan's move to more software and subscription-based businesses with segments such as Apple Music and the App Store, as consumers become accustomed to paying monthly fees for "key tech utilities" such as Spotify, Netflix Inc. (NFLX) and Microsoft Corp.'s (MSFT) Office 365. (See also: JPM Warns Customers Against Tech Stocks.)