Are iPhones too cheap?

Prices for the iPhone 18 Pro and Duo are lower than expected

When the iPhone Duo price was announced in the Steve Jobs theater I was the only one applauding.

Prior to the Duo bombshell, the iPhone 18 Pro prices were announced to be a mere $100 higher than the iPhone 17 Pro and the Apple watch prices were kept steady while the AirPods prices actually came down (for one of the cases).

A stunned silence was clearly warranted but applause?

Of course, these are the starting prices and the higher memory/storage configurations are sharply higher. The top of the iPhone price range is now $3200. 1

The base price is however the one most talked about. Ignoring for a moment the financing options (and taxes, AppleCare, non-US pricing and even accessories), are we to think that the iPhone is too expensive or is it too cheap?

Bank of America analyst Wamsi Mohan seems to think Apple made it too cheap. He cut his price target on the shares on account of there being a likely drop in margins (though an increase in volumes.) He had expected a $2,099 Duo and price increases of $150 to $200 on the Pro base models.

I had expected a 10% to 15% increase on the iPhone. On an equivalent 17->18 comparison, the price increases for the same memory configurations were as follows:

Note that there was no 17 Pro 2048 option so the 18 Pro 2048 has no comparison.

The average (unweighted) price increase was 14%, within my expectations. However, the lower memory configurations are more popular, the 256Gb and 512Gb models saw increases below 10%.2 I expect these are far more popular, putting the weighted average price increase close to 10%.

On that basis the price increases were lower than I had expected.

But there's more price increases to consider. The iPhone 17, Air, and 17e and 16 continue to be sold and they all received price increases. These increases are shown in the following graph:

Here the increases are typically higher, with an average of 17% and a maximum of 30%. And these are not "better" versions, as in the case of the 17->18 Pros. These are the same exact products. The increase on the Air 512 is the most modest and probably the best deal, again suggesting that the 512 configuration is the most economical, perhaps due to scale. 3

The Duo is out of scope of this comparison but there have been "leaks" suggesting that the $1999 price was chosen years ago to anchor the product implying that the memory catastrophe is being ignored for now. One does not need a leak to consider the anchor price logical and consistent with history of the product.4

What does this analysis suggest about ASP and volumes?

Excluding the Duo, the weighted average increase in ASP is probably around 10 to 12%. My own ASP estimate is perhaps too low at $900, and would increase to $1000 under this assumption. However, adding the Duo could bring it to $1200 in the fourth quarter, depending heavily upon the mix. And this is where the conundrum lies: the supply constraints are unknown for the Duo.

I believe the product will be supply constrained for many months. Waiting times over 1 month will probably persist well into 2027. We have to anticipate enormous demand in Asia, China in particular. I believe the product will be exceptionally popular as a gift, especially for women and the gifting season will continue into spring.

The product's "hormonal" attraction is off the charts. It all depends on which components are in constraint. The product's screen, processor and memory are challenges.

Overall, this is an aggressive stance from Apple on pricing. I noted that they did not increase pricing of the whole line in June when the Mac and iPad were hit. Months went by while Apple held the 17/Air line steady. Those buyers got a good deal as now those units are still available but are more expensive, an unprecedented situation.

There might be a perturbed market in the fourth quarter as the new Pro products are supply constrained while the base models are kept available longer than ever, but at a higher price. So far we've seen masterful management of this market wherein Apple managed to log double digit growth rates while competitors are contracting. Now more variables are added to the mix but the company is oozing with competence.

1. I should note here that having 2TB of storage or even 1TB on a phone is necessary perhaps if one captures and stores a lot of video. For the vast majority of users the base configuration is perfectly adequate.
2. Pro tip: the best deal is on the 512GB configuration, and in particular, the 18 Pro Max 512 seems to be the sweet spot with a 7% increase. It's possible that Apple's data suggests that the 512 might also be the most popular which would drive this distribution of pricing.
3. The increase in price divided by the memory size suggests about 30c/GB increase in the Pro products and 35c/GB in the 17/Air.
4. You could say Duo really means two (thousand dollars.)