Why the iPhone 6 May Cost More Than You Think
Updated from 8:20 a.m. to include additional details about next iPhone in the fifth paragraph.
NEW YORK ( TheStreet) -- For the most part, Apple
Jefferies analyst Peter Misek, who rates Apple shares "buy" with a $625 price target, believes that Apple has been negotiating price raises with carriers on the pending iPhone 6 (dubbed iPhone Air by some) to the tune of $100. So far, initial response from the various carriers has been "no", according to Misek, but given the lack of realistic competition from other handsets on the market right now, including the Samsung Galaxy S5 , the argument could swing back in in Apple's favor.
"We think Apple might be able to get at least some of the increase with the add'l costs split between the carrier and consumer," Misek wrote in the note. "A $50 ASP increase would offset most of the negative iPhone 6 GM impact and remove a major bear argument."
Apple, by and large, has started the price of its newest phone at $199 for the 16GB version on a two-year contract. A price raise for the new iPhone would allow Apple to mitigate some of the negative impact to gross margin new products have on Apple. Misek notes that the preliminary bill of materials for the next iPhone could be up to 450 basis points lower than the 5s, perhaps due to sapphire glass potentially being used, as well as other components. "Our current estimates assume a 430bp decline, which we feel is conservative unless some of the components run into yield issues," Misek wrote. "We estimate a $50 ASP increase on the iPhone 6 would raise GM by 375bp and $100 by 700bp so a $50 ASP increase would offset most of the iPhone 6 COGS pressure."
It's widely expected that the next version of the iPhone will be larger than the current 4-inch iPhone 5c and 5c. Industry reports have speculated that the next iPhone will come in two sizes, a 4.7-inch and a 5.5-inch version, with the 5.5-inch version delayed until later in the year because of component supply constraints. KGI Securities analyst Ming-Chi Kuo, who has been one of the most accurate Apple analysts in recent years, expects the next iPhone will have a couple of new features, in addition to a larger screen.
"Apple to offer all-new design 4.7" and 5.5" iPhone 6. Although the 5.5" model will have higher resolution (1,9201,080/401PPI) than the 4.7" (1,334750/326PPI), due to same proportion in terms of length and width, it is good for APP compatibility," Kuo penned in a research note last week. "Specifications common to both models will include A8 processor, LPDDR3 1GB, LTPS panel, in-cell touch, Touch ID (fingerprint identification), 10-20% narrower bezel, 6.5-7.0mm thickness, NFC chip with security element and metal casing."