Apple‘s (NASDAQ: AAPL) latest and greatest flagship iPhone has helped the company post record financial results even as unit sales over the holidays weren’t as robust as investors were hoping. The tech titan was able to reach supply-demand balance for iPhone X about a month after launch, much quicker than in previous cycles, while guidance for the March quarter also left a bit to be desired.
It seems that not all customers are thrilled about the iPhone X, and have opted not to upgrade quite yet. Now we could know why.
Piper Jaffray analyst Michael Olson recently conducted a survey of current iPhone owners, asking those who haven’t upgraded why they haven’t pulled the trigger, according to Tech Trader Daily. The most common reasons are not that surprising.
A whopping 44% of respondents (from a total of 1,500) said they didn’t upgrade because they felt their current iPhone “works just fine.” That underscores the recurring idea that the market has reached “peak smartphone” and that smartphone innovation these days is increasingly incremental and evolutionary. At 31% of respondents, the second most common reason why people didn’t upgrade was price, believing iPhone X to be “too expensive.” Priced at $999 to $1,150, few will be surprised at this response, even though CEO Tim Cook has argued that iPhone X has a “value price” when you consider how much technology Apple has included in the device.
Another 8% of respondents said they were waiting for a larger display, in which case the iPhone X Plus that is expected this year could meet that demand. iPhone X Plus is rumored to have a 6.5-inch display with a resolution of 1242 x 2688, according to a Bloomberg report last week. Finally, about 17% of customers didn’t upgrade “for another reason.”
Olson estimates that approximately 40% of iPhone owners have not yet upgraded. The analyst also reduced his estimates for fiscal 2018 iPhone sales from 230 million down to 226.3 million, while maintaining an outperform rating on Apple shares and a price target of $200.
The analyst concludes that “a larger screen and lower priced option” would largely address these customer reservations. iPhone X Plus should mitigate the former concern, but it’s less clear if Apple will concede at all on pricing. iPhone X is expensive to build and manufacture, with its bill of materials (BOM) estimated at about $370 last year by market researcher IHS Markit.
Sure, Apple’s cost structure for the iPhone X should come down over time, but the company may choose to maintain and expand its margins instead of delivering those savings to consumers.
10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Apple wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of March 5, 2018
Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.