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Apple (AAPL) is expected to break its average iPhone price record twice in the coming months as customers choose to buy costlier iPhone 14 ‘Pro’ models.
A recent report in the FT, pointed to estimates from Counterpoint Research, a data provider, that the average selling price (ASP) would likely rise to a record $892 in the September quarter and $944 in December.
The price projections are based on consumer demand, market intelligence, and feedback from suppliers. The ASP of iPhones is a typical metric used by the US stock market for Apple, since smartphone sales still account for around 50% of the group’s revenues. In theory consumer preference for the costlier Pro phone models should impact Apple’s margins positively.
So far, the Apple share price has not yet reflected rising higher margin model sales. In January 2022, the stock hit a year high at just over $182 and is now around the $150 level and actually fell at end of trading last week – despite upbeat iPhone 14 Pro forecasts.
Sales pick up may yet boost shares – it is early days after all.
Apple has only just begun making its new iPhone 14 in India – ahead of schedule. The company is up and running in assembling the latest iPhones in Chennai. Apple, which traditionally has produced most of its iPhones in China, is aware of obstacles that Xi Jinping’s government could create as it clashes with the US government.
The supply side therefore looks positive and demand for iPhone 14 Pro certainly seems strong. However, it is hard to understand in a time of belt tightening why customers might opt for the most expensive models? Is this area somehow immune to the cost-of-living crisis?
The tempting Apple
Jason Hollands, managing director of Best Invest believes a combination of a ‘must have’ factor and discrepancies globally in terms of pressure on spending, are positive for Apple.
“I think for many younger consumers, their mobile phone is such an integral item to how they live their lives they now consider it more of a staple than a discretionary item. A better model with a bigger screen, better camera is evidently considered worth paying more for”.
He adds: “And let’s not forget that while there is a lot of belt tightening going on in the UK and Europe due to high energy prices, in the key US market for iPhone sales, retail sales have actually held up well in the context of overall growth and rising borrowing costs.
“US gasoline prices have fallen back considerably in recent months, which for the US consumer will reinforce the impression that inflation has peaked.”
Steve Clayton, fund manager at HL Select, takes a similar line. “Many would expect quite the opposite when the pressures on consumer incomes are so acute. But for many people, their iPhone will be one of their most treasured possessions and the distinctive design of the new model makes it an easily recognised status symbol. Reviews have been positive and many have steered consumers toward the highest price Pro models.
Clayton suggests that for some time we’ve seen a trend toward squeezing the middlemarket right across the consumer space and Apple has been playing this trend expertly for some time. He insists people either want the lowest price or the highest perceived quality. And switching everyday spending to the former frees up the cash to indulge in the luxury end for special purchases.
“Apple is increasingly speaking to the top end of the market, with all of its ranges carrying a premium. So long as it can show leading-edge performance and the Apple logo continues to resonate desirability, this can carry on.”
Clayton adds: “You only have to look at the performance of luxury brand owners like LVMH (LVMH) compared to mid-market players like M&S to see the merits of the strategy. Had you invested £1,000 into both at the start of the century, reinvesting dividends along the way, M&S (MKS) would have turned your £1,000 into £900. LVMH however would have grown it more than tenfold.”
“For Apple investors, the results have been even more spectacular. $1,000 invested into Apple at the same time would now be worth $190,000, whereas one-time rival Nokia (NOKIA), which went down a more mass-market approach, is now a mere shadow of its former self.”
Simply Wall St currently sees Apple as being below fair value – with fair value being around the $160.37 level.
Marketbeat is also positive on Apple. Of 30 analysts, 23 either rate Apple a ‘buy’ or ‘strong buy’; 5 rate the stock a ‘hold’ with only 2 rating it a ‘sell’.
The consensus price rating from Marketbeat is $181.90.
