Apple iPhone Average Selling Price Set To Rebound If Optimism Holds

Ramish Zafar
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This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

The big news from the thanksgiving shopping season and the current quarter is that Apple (NASDAQ:AAPL) might be gearing up to reverse some of the revenue declines that it reported in the fiscal year 2019. In its latest fiscal year, the Cupertino tech giant earned $260 billion in revenue, down from the $266 billion it had earned in the year before. All of this decline is a result of a drop in product sales, as Apple's cash cow, the iPhone struggles at the maturity of the smartphone's product cycle.

Now, after an optimistic report on San Diego chipmaker Qualcomm's future, Bank of America analyst Wamsi Mohan is reporting favorable future 5G adoption and wearable sales for Cupertino tech giant Apple. Take a look below for more details.

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Apple Stock Price Target Upgraded To $290 On The Back Of 5G Optimism For the iPhone & Solid Wearables Portfolio As BofA Predicts iPhone Unit Shipment Growth

In November last year, Apple (NASDAQ:AAPL) announced its decision to stop reporting unit shipments for the iPhone. The company's smartphone forms the strongest part of its product portfolio, and analysts/journalists often used shipments for the iPhone lineup to determine how well the Cupertino tech giant was performing financially. At the time of the announcement, Apple reported no growth in iPhone unit shipments annually, despite having introduced three 'new' gadgets in the form of the iPhones XS and XR.

More importantly, the iPhone's average selling price at the time stood at an all-time high of $793 in its fourth fiscal quarter of 2018, reflected by the fact that while Apple shipped 47 million devices in both 4Q18 and 4Q17, the lineup's net sales grew by 29% year-on-year. Its fiscal year 2018 was also the last year that Apple shipped more than 200 million units of an iPhone if JP Morgan's estimate of 189 million iPhone unit shipments in 2019 is correct.

Apple's iPhone unit shipment growth crawled to a standstill in FY2018 before dropping in the next year.

Bank of America Predicts 200 Million+ iPhone Unit Shipments & Double-Digit Services Growth For Apple In Upcoming Years

On this note (no pun intended), Bank of America believes that Apple (NASDAQ:AAPL) will consistently ship more than 200 million iPhone units through its calendar years 2020-2022. This growth will be spurred by 5G. Apple's wearables portfolio will also continue to impress believes the bank, since the company has considered all price points for its products.

Apple's gross margin also slightly grew in its fourth-quarter of 2019, as revenue from services grew. Mohan believes that this trend will continue in the future too - a conclusion that others have also reached, despite Apple News+ not performing as the company hoped that it would, and Apple rumored to be considering service bundles for widening its user base.

Finally, the analyst states that the growth Apple's stock is currently experiencing is primarily based on optimism that Apple's services perform well, and for his part, Mohan expects that services will grow by double digits over the years. Apple (NASDAQ:AAPL) has grown Services revenue by 23%, 24% and 16% in between fiscal years 2016-2019.

Mohan, therefore, upgrades Bank of America's Apple target share price to $290 from $270.

Apple's installed user base for the iPhone; JP Morgan

Report From Ming-Chi Kuo Could Mean That iPhone Average Selling Price Touches $790 Next Year

If we take JP Morgan's iPhone shipment estimates of 189 million in the fiscal year 2019 and divide Apple's revenue from the product in 2019 by them, we get an average selling price of $753 for the smartphone. This reflects the fact that the average selling price of the smartphone went down in-between 2018-2019, and when this metric is combined with fresh words from famed Apple analyst Ming-Chi Kuo, we can speculate about Apple's future through some back-of-the-envelope calculations.

Kuo believes that while he expects component and product costs for next year's iPhone to increase between $30 - $100, the company will not pass this increase over to the consumer. Instead, it will choose to cut down supply chain expenditure to mitigate its impact on the iPhone's final price, and therefore not 'significantly' increase prices. The analyst's statements come at a time when a 15% percent tariff by the Trump administration on $160 billion worth of goods made in China is looming.

JP Morgan's (198 million) unit shipment estimates for Apple's fiscal year 2020 are conservative when compared to what Bank of America expects. Using their predictions to assume that Apple ships 210 million iPhones next year, taking Kuo's forecast into account, and further assuming that price and shipment increases grow iPhone revenue back to the $166 billion Apple (NASDAQ:AAPL) earned in 2018 would suggest that that the iPhone's average selling price is ready to jump to $790.

Now if only those pesky problems with the AirPods Pro would go away before the holiday season.

Thoughts? Let us know what you think in the comments section below and stay tuned. We'll keep you updated on the latest.

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