When Apple Inc. (NASDAQ: AAPL) rolls out its new iPhone in September, where can we expect the new model to price? There has been some speculation and rumors that this year the average price might jump quite significantly, which could have huge implications on one hand for Apple hitting sales goals or on the other for any consumers looking to pay out the nose for the new smartphone.
According to John Gruber at Daring FireBall, this could very well be a reality, when considering Apple’s pricing in the past and the margins that management is seeking to maintain.
In terms of the breakdown, Apple’s revenues are dominated by iPhone sales, which comprise about 70% of all revenues. So it might be safe to say that Apple’s overall operating margin (37% to 38%) is more or less in line with its iPhone margin.
For the tiered pricing in the past Apple has offered:
- iPhone 7 Plus 32 GB: $769
- iPhone 7 Plus 128 GB: $869
- iPhone 7 Plus 256 GB: $969
Now to sell these iPhones at a margin of anywhere from 35% to 40%, there are a few considerations. Notably, Apple must produce and sell these at scale, meaning the company has to make and sell 60 million to 70 million in its first quarter or this could be a failure.
Gruber eventually came to this conclusion:
It sounds to me like the OLED iPhone is a phone which Apple can’t make 40 million of per quarter, at least not today. And if that’s true, that means it should be more expensive. Not should in any moral sense, but simply because that’s how the principle of supply and demand works. When supply is constrained and demand is high, prices go higher. The higher prices alleviate demand.
If supply constraints should arise, Gruber continued:
But if Apple expects severe supply constraints on these iPhones, I think prices of $1199 (64 GB) and $1299 (256 GB) are more likely. I honestly don’t think something like $1249/1399 is out of the question.