Apple is expected to launch a premium version of the iPhone later this year, “iPhone 8,” which may be priced at $1,000 (£764) or more.
The question is, will people pay more than $1,000 for an iPhone?
There are two schools of thought on this:
No, it’s too expensive. Some people will buy it. But most people just can’t afford it. It will be a flop. Yes, iPhone 8 will be such a huge step above iPhone 7 that it will be a huge hit, regardless of the price.
There is a lot riding on this question. In four out of the last five quarters, iPhone sales declined. Apple needs iPhone 8 to restart growth at the company. The rumours suggest that Apple will cram a bunch of new technology into the new phone: OLED displays, wireless charging, 3D sensors for AR, and maybe even move or get rid of the Touch ID fingerprint security button.
But all that will come at a cost, and Apple may be forced to make iPhone 8 its most expensive model ever. And there are already credible reports that iPhone 8 has manufacturing difficulties that will make supplies of the phone much smaller than its other models.
Analyst Nicolas Baratte and his team at CLSA believe the price will be too high. They note that on the existing range of iPhones, Apple sells very few at prices above $900 (£689):
In fact, Apple’s average selling price (ASP) for iPhone has historically been under $700 globally. A $300 (£229) price hike would trigger sticker shock for many buyers.
Baratte told clients it will be “very unlikely” that Apple will sell many phones at that level:
“Breaking down the high-end price range, we can see that iPhones sold close to US$900 only occurred during its launch quarter. Then ASP of the same product drops by c.US$20-US$30 in the 2 quarters, then eventually to prices close to US$800 in its fourth quarter.”
“This means that the most motivated customers are first in the queue to buy the most expensive models. But the majority of consumers are more patient and buy the mid-price models.”
“Hence we think that the upcoming iPhone 8 OLED could possibly sell in small volumes at over US$1,000 during the launch quarter, for example a 512GB model, but large volumes (70-90m over 4 quarters) seem very highly unlikely at this price level.”
Conversely, BMO analyst Tim Long believes the phone will be a hit, but its effect on total iPhone sales will be dulled because it will cannibalise sales of Apple’s other phones:
“For the 2017 iPhone refresh, we expect some cannibalization by the premium model. While we expect like-for-like units to be 23 million lower, we model 43 million of unit volume from the premium model, up from the 34 million we had modeled previously. On balance, we estimate 20 million of incremental volume, the best launch since iPhone 6, although still less impactful. We believe these new numbers are more realistic given the demand setup than our more conservative prior estimates.”
The result will be a sort of two-steps-forward-one-step-back effect on total iPhone sales, as represented in this chart of incremental sales of new iPhones:
That scenario would make this year’s iPhone a much better performer for iPhone sales as a whole than iPhone 7. Simply getting back to meaningful sales growth will be regarded as a victory by Apple.
But it would still leave iPhone 8 30 million incremental units behind iPhone 6, Apple’s all-time biggest phone launch.