Apple Inc. (AAPL) iPhone XS Spending Is Unprecedented

After all of the hype surrounding last year’s iPhone X, Apple Inc. (Nasdaq: AAPL) investors may have anticipated a low-key 2018 iPhone upgrade cycle. Fortunately, a pair of new surveys indicate demand for the high-end versions of the new generation of iPhones may be much higher than Wall Street had projected.

According to RBC Capital analyst Amit Daryanani, a new survey of more than 5,000 iPhone users indicates demand for the iPhone XS and XS Max is strong and positively skewed to the higher-priced models. The survey revealed that iPhone purchase intent has increased to 26 percent, up from just 20 percent at the same time last year. More than two-thirds (68 percent) of potential buyers say they intend to splurge on the higher-priced 256 GB and 512 GB iPhone versions. The 512 GB version of the iPhone XS Max is the most expensive iPhone at $1,449.

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The more high-end iPhones Apple sells, the higher Apple’s iPhone average sales price and margins will rise.

“In [the] case of iPhone X, for the first time, a majority of users had indicated preference for the highest storage models, with over 57 percent opting for the 256 GB model,” Daryanani says. “In iPhone XS/XS Max, the skew gets even [stronger], with 68 percent opting for higher than 64 GB base storage.”

RBC’s survey results mirror a smaller sampling Loup Ventures took last week. Analyst Gene Munster surveyed 50 customers waiting in line at the Apple store and found that 70 percent of them were planning to buy the XS Max version of the iPhone. Historically, only 54 percent of iPhone buyers have opted for the higher-priced Plus version.

“Customers are more interested in the XS Max this year than they have been interested in Plus-sized phones in the past,” Munster says.

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Loup Ventures is projecting Apple’s fiscal 2019 iPhone ASP will be $791, well above consensus estimates of $765.

Munster found that 71 percent of iPhone buyers are upgrading from models that are no more than a year old, up from a historical average of 43 percent. That trend could be even more good news for Apple investors if it indicates the iPhone upgrade cycle is shortening.

RBC has an “outperform” rating and $250 price target for AAPL stock.

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