Apple Is Planning To Raise iPhone 6 Price By $100: Jefferies

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Apple Inc. (NASDAQ:AAPL)’s upcoming iPhone 6 will have multiple new features including a bigger screen, sapphire glass display, optical image stabilization and Healthbook, says KGI Securities analyst Ming-Chi Kuo. Such a high-end device should definitely cost a bit more than its predecessors. Jefferies analyst Peter Misek says that the iPhone maker is in talks with telecom carriers to raise the price of the iPhone 6 by $100.

Carriers can’t afford not to offer the iPhone 6

Misek said that carriers have been reluctant to raise the price. But there seems to be a consensus among telecom operators that the iPhone 6 will be the only game-changing device of 2014. So, there’s the chance Apple Inc. (NASDAQ:AAPL) could get some of the price increase it wants. Jefferies estimates that even a $50 raise would offset a big chunk of negative gross margin impact due to the iPhone 6. It will also remove the bear argument, at least partially.

Last month, Pacific Crest analyst Andy Hargreaves said in a research note that the failure of iPhone 5C shows that Apple Inc. (NASDAQ:AAPL) fans aren’t interested in cheap products. Instead, they want the best of the best, and are willing to pay top dollar for that. He said the popularity of the iPhone brand, coupled with new features and bigger display is likely to push the iPhone’s average selling price (ASP) from $605 to $641.

Investors are concerned about handset price cuts and possible carrier subsidy due to lack of differentiation and saturation of the smartphone maker, but Peter Misek says that this lack of differentiation could be the very reason Apple Inc. (NASDAQ:AAPL) would get a price increase. Carriers think that the iPhone 6 will be the most-awaited high-end smartphone of the year, and they would lose subscribers if they don’t offer it.

Who will pay for the iPhone 6’s price increase?

A big question is who will pay for the possible price increase. Jefferies says that telecom operators have little ability to resist, and they are likely to take most of the hit themselves. But the growth of EIP plans means consumers would take the blow of the price hike and they might opt of relatively cheaper handsets.

Peter Misek says the ASP increase would offset the gross margin headwinds as the iPhone 6 will have a pricier display. Jefferies’ preliminary estimate suggest that the iPhone 6’s gross margins would be about 450 basis points lower than the iPhone 5S without increasing the price. In contrast, a $50 price increase on the iPhone 6 is estimated to push the gross margin up by 375 basis points. A $100 hike would increase GM by 700 basis points.

Apple Inc. (NASDAQ:AAPL) shares ticked up 0.54% to $522.44 in pre-market trading Monday.

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