An Unexpected Catalyst For Apple Inc (AAPL)’s iPhone 8 Super Cycle

Kulbinder Garcha from Credit Suisse anticipates that ASPs would need to increase marginally to offset the incremental cost of OLEDs:

Specifically, we believe Apple will need to raise the ASP of the OLED iPhone 8 line by ~$50 and keep the mix new phones to ~35% (close to current levels) to keep iPhone GMs stable (assuming a $25 BOM increase from OLED). Additionally, we believe, the services growth can also help offset this.

However, investors should keep in mind that if Apple is releasing the iPhone 8 as a tier above the iPhone 7S Plus, the pricing may start $100 higher for the base iPhone 8 model versus the 7S Plus. Retail pricing may start at $869, and increase incrementally by $100 for the higher storage tiers. This suggests that pricing could cap at around $1,050 for the 256 GB iPhone 8 model, which would make the iPhone 8 not only the best, but most profitable iPhone ever released. (See also: AAPL Stock Vs GOOGL Stock: Better 2017 Pick- Apple Inc. Or Alphabet Inc?)

That being the case, some are speculating on even higher pricing, perhaps $1,200, according to Gordon Kelly from Forbes. But, I’m skeptical of such a high pricing premium for the iPhone 8 with 256 GBs of storage.

Furthermore, the incremental cost of an OLED screen is expected to be $25, so a $100 base price increase sufficiently addresses the component cost increase, and would be more in-line with Apple’s current pricing structure.

Final thoughts

iPhone 8 is the main catalyst behind the iPhone super-cycle theory. Analysts remain divided on whether iPhone 7 will creep up in the back half of 2017, and will diminish demand for the 10-year anniversary iPhone. Nonetheless, if Apple were to institute a pricing premium for the iPhone 8, it’s likely $100 more at base storage when compared to iPhone 7S Plus. A pricing premium beyond that could dampen demand making the iPhone 8 a little too far out of reach even for the die-hard enthusiast.

I continue to reiterate my positive stance on Apple stock. While shares have underperformed the broader market, I anticipate excitement in the Apple trade will return upon strengthened outlook in the next quarter.

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The article An Unexpected Catalyst For Apple Inc.’s (AAPL) iPhone 8 Super Cycle originally appeared on amigobulls.com. Watch our analysis video on AAPL.

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