Apple’s Pricey iPhone X Will Turn off A Lot of Users, Make Piles of Money, Says Maxim

The Street continues to come up with new models to account for Apple’s (AAPL) pricing of the ” iPhone X,” revealed on Tuesday, of which the top-end model, with 256 gigabytes of NAND storage, costs $1,149.

While some think this is brilliant, and some think it’s too pricey, Maxim Group’s Nehal Chokshi falls somewhere in between this morning, arguing the phone will lose Apple a lot of customers, but also make the company more money.

Chokshi, who has a Buy rating on Apple shares, raises his price target to $182 from $180, after running a “proprietary survey” to determine the “elasticity” of demand for the iPhone X.

Chokshi found the price of iPhone X is too expensive for many buyers, especially in China :

We had been modeling an inelastic demand response to just a ~$50 price increase to over the iPhone 7 to $700, which assumed an ~40% GM would be maintained on an ~$30 incremental bill of materials associated with the three new features. Based on the price elasticity data from our survey (shown again from our June 19th note, Figure 1 below), we believe the new to iPhone users (especially those in Greater China) will find the iPhone X pricing ($350 more than iPhone 7 a year ago) to be well above their level of willingness to pay. Thus our FY18 25% reduction in Greater China iPhone unit sales and 8% reduction in non-Greater China corresponds (see Figure 2 below) to the % of users from our survey work that indicated price sensitivity to anything less than a $240 price increase, whereas we previously assumed only a $50 price increase and assumed those that indicated sensitivity at that level were low end iPhone users that would not experience a price increase.

Chokshi cuts his total estimate for fiscal 2018 unit sales of iPhone to 247.75 million units from a prior 283.94 million units. But higher pricing means Apple will make even more than he’d been figuring, at $194.3 billion in revenue off iPhone, up fro ap prior estimate for 193.2 billion.

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