Apple recently released its first-ever 5G smartphones and these devices come with other upgrades. According to a recent Barclays report, the iPhone 12 series profit margin will decrease. The upgrades on this new series will negatively affect the company’s profit margins. There will be a reduction in its average selling price (ASP) no doubt. In fact, there is a significant reduction in its AAPL target price.
The iPhone 12 series comes with a couple of changes. One of the important changes is that all four new phones support 5G networks. Another upgrade is that both the iPhone 12 and iPhone 12 mini will use OLED screens. In the past few years, this type of screen has only been available on Apple’s highest-end iPhone models. The Barclays analysis also emphasized the upgrade of the basic storage version of the iPhone 12 Pro and iPhone 12 Pro Max from 64GB to 128GB.
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Headset and charger removal does not offset the cost of 5G, OLED screen, and storage upgrades
Although Apple has canceled the EarPods headset and charging adapter from the iPhone 12, Barclays concluded that these savings cannot cover the cost of upgrading to 5G, OLED screens, and storage. It believes that iPhone 12 series profit margin will decrease this year. Of course, Apple enjoys the highest profit margins in the smartphone industry. However, from an investor’s point of view, the potential decline is still worrying.
In terms of the iPhone 12 portfolio, Barclays believes that consumers may avoid the iPhone 12 Pro for $999 and above, and prefer the more affordable $699 version of the iPhone 12 mini (the real price is $729) and the $799 version. If so, Apple’s iPhone ASP may drop.
“For mix, the $799 starting price for regular iPhone 12 could result in iPhone mix moving towards lower priced mini as well as legacy iPhone 11 ($599) given 5G just started. Removing 64GB options for Pro and Pro Max makes sense for consumers, but the mix will likely move towards 128GB, and it essentially doubled the cost of storage as NAND cost/bit is 5% higher Y/Y. Including mmWave support for all four US models also adds headwind for gross margin”.
Another factor in Barclays’ outlook for Apple’s AAPL performance is that the launch of the iPhone 12 mini and iPhone 12 Pro Max was postponed to November. The company also believes that Apple did not provide a compelling reason to explain why consumers need 5G networks. At the time of writing, Apple’s AAPL share price is $121.19. Barclays predicts the potential downside of AAPL at -19.6% and sets its target price at $100.
