Will Apple's iPhone 6 Be More Expensive?

If you were hoping Apple might soon begin to cater to the booming lower-cost smartphone market, don't hold your breath. In fact, iPhones may soon get even more expensive.

Apr 14, 2014 at 1:05PM

Like clockwork, the average Apple (NASDAQ:AAPL) iPhone buyer upgrades every two years in the U.S. But would Apple customers upgrade at the same rate if the subsidized price were $299 instead of $199? We may soon find out. Several reports are suggesting that Apple may sell the iPhone 6 for a subsidized price of $299. While the news may be disappointing for consumers planning to buy the new iPhone, several analysts think that such a move would work out well for Apple's business.


iPhone 5c. Speculation surrounding Apple's iPhone 6 models suggest Apple may be planning to launch both a 4.6-inch and 5.5-inch iPhone this year.

Bringing Apple back to big growth?
Reports that Apple could sell its iPhone 6 at a higher price point than usual began in early March when Pacific Crest analyst Andy Hargreaves upgraded his price target for Apple stock to $635, more than $100 above today's trading price, giving the stock an outperform rating.

A $299 subsidized price for the iPhone 6 was his primary reason for the upgrade. The phone, speculated to have a larger screen-size than the iPhone 5s, would not only boost gross profit on replacement sales but would also attract new customers entirely who may have otherwise opted for an Android device with a larger display.

And the pricey iPhone 6's effect on replacement cycles? "We expect iPhone replacement rates to remain stable for the foreseeable future, which should underpin strong cash flow to fuel Apple's cash return activity and a still growing net cash balance," Hargreaves said in a report to investors (via The Street).

The latest analyst to join in on the bullish projections for a pricier iPhone 6 is Jefferies analyst Peter Misek. Apple is already courting U.S. carriers with the idea of adding $100 to the current subsidized price of new iPhones with the launch of the iPhone 6, according to Misek (via StreetInsider). While Misek says that carriers seem initially opposed to the idea, he believes that they may eventually cave and give Apple "at least some of the increase" that it is seeking.

[W]e think this general lack of differentiation could be the reason why Apple may be able to get a price increase. Carriers realize that the iPhone 6 will likely be the only headline-worthy high-end phone launched this year and that they will lose subs if they do not offer it.

Apple Store

How would a more expensive iPhone 6 impact Apple's bottom line? Misek's worst-case scenario, in which Apple's average selling price grows by $50 and unit sales decline by 5%, predicts EPS growth of 6% post iPhone 6 launch. His best-case scenario projects the average selling price to grow by $100 and unit sales growth to remain flat. The impact? Year-over-year EPS growth of 24%.

Interestingly, both Misek's bear and bull scenario for a more expensive iPhone are enough to argue that Apple is potentially underpriced at today's levels. Trading at just 13 times earnings, short of the S&P 500's price-to-earnings ratio of 17.6, Apple needs very little growth to justify its current valuation. And keep in mind that Misek's scenario doesn't even consider the potential impact of the new categories Apple CEO Tim Cook has promised.

While investors shouldn't consider a higher price point for the iPhone 6 locked in at this point, the possibility of a price increase in Apple's largest and most profitable business segment at least provides another reason to believe that the market may not be fully appreciating all of Apple's pricing power and customer loyalty. And if Hargreaves and Misek really are on to something, Apple stock may be straight-up cheap.

Here's Apple's next big move and the best way to play it!
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Daniel Sparks owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers