Why An All-New $600 iPhone Is Unlikely

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Apple (NASDAQ:AAPL) is likely to launch its new iPhones this fall, in keeping with its regular upgrade cycle for its flagship smartphones. Well-respected Apple analyst Ming-Chi Kuo has indicated that the company could launch three devices, including a second generation 5.8 inch iPhone X, a plus-sized version of the iPhone X with a 6.5-inch OLED display, and a more affordable 6.1-inch all-screen LCD based device, which would be priced at $600 to $700, but have a design similar to the iPhone X. While the launch of the two premium devices is largely expected, we remain skeptical as to whether Apple will launch a new iPhone at a $600 price point, considering the potential cannibalization of its more expensive devices.  That said, we believe that a mid-tier device priced at levels similar to the iPhone 8 and 8 Plus ($700 and $800, respectively) could prove to be positive for Apple from both a volume and ASP standpoint. Below, we take a look at a few reasons for this.

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Why A $600 Phone Would Hurt Apple

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While Apple offers entry-level and mid-tier iPhone models, they are typically legacy devices, which are meaningfully differentiated from the company’s flagships. For instance, the company’s entry-level and mid-range iPhones currently include the $350 iPhone SE and the $550 iPhone 7, both of which launched about two years ago. If the company launches an all-new mid-range device at a $600 price point, it could risk hurting sales of the more lucrative iPhone X models, while dragging down its ASPs – which have been the biggest driver of iPhone revenue growth in recent quarters. During Q2 FY’18, iPhone ASPs grew by 11% year-over-year to $728, while shipment volumes grew by just 3%.

A Midrange Device In The $700 to $800 Range Could Hit The Sweet Spot

That said, Apple could benefit from launching a new device at a price point between $700 and $800 similar to the iPhone 8 and 8 Plus. Apple is expected to keep costs of the new handset low by eschewing many premium features available on the iPhone X – for instance, the device is expected to skip the costly OLED screens that Apple has had trouble procuring in favor of more widely available LCD panels, which are much more economical. The device is also reportedly unlikely to offer the 3D touch pressure-sensitive display that has been a staple of most iPhones launched since 2015, while only sporting a single camera, as opposed to the dual rear camera setup on the current iPhone X. By offering the iPhone X’s signature design and potentially the FaceID biometric system, the company could entice users of older iPhones to upgrade to a fresh looking device without having to spend on a more expensive iPhone X. At the same time, product differentiation would also be reasonably strong for the X, which could cater to users seeking cutting-edge camera and display technology. Margins on such a device could also be attractive, considering the lower bill of materials costs.

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