Apple's Winning Strategy - Analyst Highlights How Pricing and Services Fuel Market Growth

B of A Securities analyst Wamsi Mohan reiterated Apple Inc AAPL with a Buy and a $225 price target.

Apple’s pricing strategy over the past 17 years has played a crucial role in driving both its unit sales and revenue share in the competitive smartphone market, the analyst said. 

Since the launch of the first iPhone in 2007, with initial prices set at $499 for the 4GB model and $599 for the 8GB model, Apple has significantly expanded its iPhone price range from $429 to $1,599. 

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This strategic pricing approach includes introducing new iPhone models annually, especially the Pro/Pro Max versions, to cater to the premium segment while simultaneously reducing the prices of previous models by about $100 for each iteration, Mohan stated. 

This method, combined with installment plans offered by Apple and various carriers, has propelled the iPhone installed base to a record level of 1.2 billion in 2023.

Despite a decline in unit sales, mainly impacted by slower sales in China, Apple has successfully increased the market share of its iPhones, both in terms of revenue and units, he said. 

In 2023, iPhones accounted for 18.8% of the total smartphone market unit share, marking a slight increase from the previous year. 

Apple’s dominance is particularly notable in the premium segment, where it has held over 90% market share in the $1,000 and above price range for the past three years, Mohan flagged.

Furthermore, the market for used iPhones has grown, representing 34% of the installed base in 2023. This trend suggests a gradual shift of users from used to new iPhones, aligning with the iPhone refresh cycle of approximately every four years, as per the analyst. 

Additionally, Apple has seen a meaningful increase in services revenue per installed base device, from $50.59 in 2019 to $73.01 in 2023, indicating a successful monetization strategy for its services sector. 

This comprehensive pricing and market strategy underlines Apple’s ability to maintain a strong position in the market, drive revenue growth, and expand its services despite challenges, affirming the effectiveness of its approach in the long term, Mohan added.

Mohan projects fiscal 2024 revenue of $396.24 billion versus $388.05 billion consensus.

Price Action: AAPL shares traded higher by 0.63% at $173.84 on the last check Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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