A new investment note from the major bank UBS suggests that the tenth anniversary iPhone 8 may not be as expensive as was presumed. The Swiss financial services company suggests that the next generation iPhone will retail at less than $1,000, with new models of the smartphone expected to achieve what UBS describes as a “bulge of buying”.
Stock price hike
As a result of its price anticipation for the iPhone 8, UBS is now positive about the Apple financial outlook for 2018. It now believes that Apple’s earnings per share will be $10.55 in this period, which is a significant increase over its previous estimate of $10.25. UBS also asserts that the iPhone average selling price will be $692, which is up from a prior estimate of $667.
So what has caused the investment bank to radically alter its perception of Apple and the iPhone 8? UBS believes that the 2017 iPhone release will benefit from a massively boosted upgrade cycle, with high-end technology boosting the iconic smartphone series. UBS seemingly believes that the much vaunted OLED iPhone 8 will indeed come to fruition in the next six months, with three models of the smartphone series also expected.
Apple is expected to benefit from the superior display quality of OLED technology, and particularly the power efficiency boost over its previous LCD screens. however, there will also be financial challenges for Apple in manufacturing the iPhone 8 at an affordable price point, with UPS stating that the factory cost of the 64GB iPhone 8 will be around $80 higher than the iPhone 7 Plus.
Price tag floated
Nonetheless, despite the extra manufacturing costs, UBS believes that the iPhone 8 will retail at a price point between $850 and $900. This will have a significant influence over Apple’s profitability, as UBS believes that it will negatively impact upon the gross margin for the company. However, the extent of this will be relatively trivial, with UBS suggesting that it is likely to decline to around 38.5 percent in the 2018 fiscal year; only a slight decline from its estimate of 38.7 percent for the existing financial period.
And the investing bank also believes that the 64GB OLED iPhone 8 model priced at $870 will be a strong performer for the Californian corporation. “We think an $870 price would be accretive to EPS but dilutive to gross margin, a dynamic Apple has said it would accept,” UBS opined.
It seems that with Samsung having already released the Galaxy S8 at an affordable $720 price point that there is pressure on Apple to deliver a more reasonably priced smartphone. Even the larger Galaxy S8 Plus retails at $840, and it quite clear that Apple would be pushing even its massive reputation and brand penetration with a $1,000 plus price point.
Nonetheless, it is notable that the estimate of UBS places the RRP for the iPhone 8 above even the premium Galaxy S8 Plus version. But the investment bank believes that consumers will be willing to shell out the extra money in order to purchase hardware that is considered innovative.
Additionally, the Apple brand remains one of the most bankable in any industry. Analyst Steven Milunovich noted that Apple has been able to retain the average selling price of its Macs above $1,200 despite the industry ASP falling to around $600. Yet despite the disparity in price, sales of the desktop computer have remained extremely robust, with the Cupertino-based company having posted only two negative years of Mac sales. “Apple customers seem fine with paying more for products they feel are differentiated,” Milunovich asserted.
Even the iPhone 7 Plus has sold rather well for Apple, with UBS noting that the phablet “has had more demand than any other Plus model release”. The dual-camera unit included in the phone is thought to have been particularly significant, and UBS predicts that the Plus range will account for over 40 percent of-sales in fiscal year 2017. This is excellent news for Apple, and illustrates the growing significance of its flagship phablet, as the historical average for this device has been around 25 to 30 percent.
Screen size hint
Meanwhile, with UBS suggesting that the Plus mobile may account for around 45 percent of sales for the iPhone 8 series, the financial institution also make predictions about the screen size of the smartphone. It is suggested by UBS that the main model of the iPhone 8 will feature a 5.2-inch display; an interesting suggestion as it would represent an increase in screen real estate over previous releases.
Nonetheless, it is still notable that the 5.2-inch screen would be significant as this will be a serious area of consideration with regard to pricing. “Apple’s top model will be at a display size disadvantage to Samsung’s Galaxy S8 Plus. We still think Apple will choose to price its top model relative to Samsung’s top model, but remain cautious on how much higher Apple could ultimately go on price given a smaller display,” Milunovich suggested.
Thus, the UBS analyst believes that Apple must deliver unique and innovative new features if it is to capture the imagination of consumers. “Offsetting this display size differential is the fact that the OLED iPhone could have features not included in the Galaxy S8 Plus, such as a front facing 3D sensing camera, embedded fingerprint sensor and higher quality facial recognition,” the analyst wrote with regard to the next generation Apple handset.
Responding to its predictions about the iPhone 8, UBS reiterated its $150 price target for Apple stock, significantly above the mean of $147, according to Reuters data.
Barclays research note
In other news, a research note from Barclays Investment bank suggests that Apple will include “full spectral sensing” as part of a “True Color” display in the iPhone 8 generation. This is effectively an ambient light sensor, already included in the iPad Pro.
Barclays analysts Andrew Gardiner, Hiral Patel, Joseph Wolf, Blayne Curtis, and Mark Moskowitz collaborated on a report which floats this content improvement for the iPhone 8. Clearly Apple is stepping up its preparation for the next gen flagship.