Why Apple May Be Lowering iPhone Prices This Year

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Apple may be reversing course and lowering iPhone prices, after iPhone sales growth slowed with 2017’s $1,000 iPhone X model, and price hikes on the iPhone 8 line up. This year’s new iPhone X will likely come in two models and could start at $900, Morgan Stanley analyst Katy Huberty forecast in a report on Monday.

Expected to arrive in September as usual, the potentially cheaper new iPhone X successor will still have a 5.8-inch OLED screen. A new $1,000 Plus model will have a 6.5-inch OLED screen, Huberty added. The current iPhone X, introduced on September 12 last year, costs $1,000 with a 5.8-inch OLED screen, Apple’s first use of the higher-contrast display technology.

Sales of the iPhone haven’t gone down, but also haven’t grown much, since Apple introduced the X and an iPhone 8 in two sizes. Apple sold 129.5 million iPhones over the past two quarters, up just 0.4% from the same period the year before, when it introduced the iPhone 7. But revenue is up 14% to $99.6 billion, thanks to the higher prices. Apple likely won’t be able to push through another price hike or add an even more expensive model at, say $1,500, this year so future growth will depend more on selling more phones.

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“As we approach the upcoming iPhone cycle, investors are asking whether (average selling prices) will come under pressure given news reports that Apple will be more price sensitive with the iPhone line-up launching in September 2018,” Huberty wrote in a research report. Statements by Apple CEO Tim Cook are “suggesting to us the new iPhone line-up will remain priced at the very high-end of the premium smartphone market,” she added. “That said, we don’t expect the upper end of the iPhone price points to increase materially, and in order to get more comfortable with how pricing variability will affect FY19 ASPs, we conducted a detailed scenario analysis.”

The higher revenue from higher prices no doubt bolstered Apple’s record profits. But stagnant unit sales mean the number of overall iPhone users may not be growing, and Apple is increasingly counting on building its services revenue from a growing base of iPhone users for everything from app purchases to iCloud storage accounts.

Apple is likely to offer one phone without an OLED display this year, down from the two models of the iPhone 8 introduced last year. A new 6.1-inch model, larger than the current 5.5-inch Plus model of the iPhone 8, could be priced between $670 and $770, Huberty wrote. The current iPhone 8 Plus costs $800.

Apple (AAPL, +1.82%) often sets the trends in the smartphone market that rivals follow, such as when it eliminated the headphone jack. But most other phonemakers are avoiding copying Apple’s high-priced new option, sticking to the previous standard of charging $700 to $800 for high-end flagship devices.