Hollis Johnson
iPhone X.
- According to a UBS note, Apple has seen a big boost in the proportion of people willing to pay $900 for an iPhone.
- It shows that the iPhone isn't dead, contrary to naysayers looking at Apple's flatlining sales.
- Instead, it shows Apple has found a way to milk "big buck Apple fans" even if the days of rocket ship sales growth might be over.
There is a popular theory among Apple-watchers that the iPhone is basically dead.
That isn't to say millions of people won't keep buying new mobile phones from Apple. But perhaps the days of rocket ship growth in iPhone sales are over.
Proponents of this theory point to the fact that the iPhone is "mature" and that sales are dropping. They also point to Apple's failure to replicate its Western dominance in China.
Another worry is that Apple is asking too much for its newest iPhone X model, which starts at $999. It's the first iPhone to approach the $1,000 barrier, with its predecessor the iPhone 8 starting at $699.
Except Apple might be proving all these people wrong.
iPhone sales might be dropping, but people are paying more money for them
According to a note sent on Monday by UBS analysts Timothy Arcuri and Munjal Shah, Apple is successfully persuading people to move up the iPhone price scale.
They cited a survey from consumer intelligence firm CIRP, which showed that 26% of Apple consumers paid more than $900 for the iPhone in March this year. That's up from 5% a year ago, and up from 24% in March. CIRP surveyed 500 Apple consumers between April and June this year.
It's important to point out that the iPhone X was only released in November 2017, which is why Apple didn't see many people spending more than $900 on an iPhone this time last year.
But what the figures show is that a significant proportion of Apple fans are prepared to cross the $900 barrier when it comes to new iPhones.
"Some have argued iPhone X pricing has hurt unit growth, but we believe Apple has been successful with its pricing strategy and has moved customers up the price curve," wrote Arcuri and Shah.
The two predicted that Apple will charge even more for the follow-up "iPhone X+" this year, contradicting another popular theory that Apple would reduce the iPhone X's price, and launch its successor at the same introductory price of $999.
Apple, by this logic, is slowly making people more comfortable with pricier phones. That's great news for profit. According to TechInsights, Apple makes much more money from the iPhone X than it does from the iPhone 8.
The iPhone X, by this analysis, costs $357.50 to make and sells for $999, giving it a gross margin of 64%. The iPhone 8 sells for $699 and has a gross margin of 59%.
UBS wrote: "We think Apple's pricing strategy has worked better than most investors believe. A moderate mix-down is evident, but Apple successfully moved most premium customers in the $700-900 price range to price bands over $1,000."
UBS included a chart too with an even more blunt title: "Milking the big buck Apple fans while bringing more in the ecosystem."
UBS/CIRP