Apple (AAPL): iPhone Average Selling Price Up 24% to $880 in Q2, But a Likely Reversion to a More Traditional Mix in 2022 Will Impact Margins and Revenues - Bernstein

May 11, 2021 10:25 AM EDT
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Bernstein analyst Tony Sacconaghi breaks down Apple's (NASDAQ: AAPL) Q2 earnings report with a focus on margins and average selling price (ASP).

Apple raised iPhone ASPs by $170 YoY (24%) to over $880 in Q2, which is the highest level since the iPhone launch in 2008. According to Sacconaghi, the Q2 ASP growth also represents the second-highest sequential change in iPhone ASPs in the last nine years.

“What is driving strength in iPhone ASPs? We believe it is largely a mix shift to Pro/ProMax models. Moreover, our analysis suggests that this mix shift was the principal driver (~50%) of Apple's stunning 575 bps of YoY improvement in product GMs in Q2. We estimate that the mix of Pro/Pro Max models in Q2 may have been 2000 bps higher than a year ago. Moreover, we believe that margins are 1000 bps+ higher than non-Pro Models, largely due to richer attach rates of storage/NAND, which generates up to 90% incremental gross margin,” the analyst writes in a note.

So, what happens to ASPs going forward?

“We struggle with whether strong ASPs will persist into next year. On one hand, Apple is optimistic that financing and trade-in plans will continue to encourage consumers to buy the best available/most expensive devices. That said, we believe that pandemic wallet share shifts may have contributed to the increase in ASPs (and could reverse); and, as noted above, we suspect that Apple's wealthiest and most feature sensitive customers were the first to upgrade to Apple's iPhone 12 5G offering, and that consumers over the next few quarters/cycle will be less enthusiastic/affluent on balance, potentially opting for less expensive models and lower storage configurations,” explains Sacconaghi.

In case the market reverses to “a more traditional Pro mix,” we could see ASPs drop by 5% or more in FY 22, impacting Apple' revenues by $10B+ and company GMs by over 100 bps, concludes Sacconaghi.

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