Munster: Apple’s iPhone Prices Suggest Healthy Demand

Source: Piper Jaffray

Apple’s (NASDAQ:AAPL) unlocked iPhone pricing strategy suggests that the devices have been selling well in the U.S. and various other overseas markets, observed Piper Jaffray analyst Gene Munster in a recent note to investors. Munster tracks unlocked iPhone prices on Apple’s websites for Brazil, China, France, Germany, the UK, and the U.S. on a weekly basis in order to gauge demand. The analyst has been tracking prices on various low-capacity iPhone models since the release of the iPhone 5S and iPhone 5C last September.

According to Munster, the iPhone 4S price dropped an average of 24 percent in the six countries he monitors. He noted that this price drop was “essentially in-line” with price drops on previous legacy models after a new iPhone launch. The iPhone 4S has become the legacy model for most markets, since Apple discontinued making the iPhone 5 when it launched the iPhone 5C and iPhone 5S.

However, Apple also sells the iPhone 4 in some emerging markets. As noted by Munster, the iPhone 4 is still available through Apple’s websites for China and Brazil. After the launch of the latest iPhone models, the price of the iPhone 4 dropped an average of 21 percent. Since then, the iPhone 4 price has essentially held steady. Overall, Munster believes that the stable iPhone prices in these markets suggest that, “iPhone demand has been healthy and Apple has not resorted to lower prices to drive demand.”

Based on these price checks, Munster noted that, “We remain comfortable with our CY14 estimates with the current pricing strategy given our (and Street) estimates appear to be conservative with expectations for 10-12 percent iPhone unit growth in CY14.” Apple is due to report its earnings for the first-quarter of fiscal 2014 on January 27.

Although Munster expects iPhone prices to drop approximately 10 percent “over time,” he doesn’t believe that the price drop will be enough to attract a “new class of customer.” However, it may bring Apple some new sales from “customers on the margin.” Munster predicted that the next series of pricing tweaks for emerging markets will likely happen in late spring or early summer, as Apple prepares to release its next iteration of iPhone in the fall of 2014.

Like several other analysts Munster said that he expected the upcoming iPhone 6 will feature a larger screen. The analyst also predicted that the entry-level iPhone 6 would sell for an average price of $869. Although Munster did not provide a screen-size estimate in his note, other analysts like Cantor Fitzgerald’s Brian White have predicted that Apple will release two large-screen iPhone models. According to White’s supply chain sources, Apple will release a 4.7-inch model and 5.5-inch model this year. Munster has an “Overweight” rating on Apple shares and a $640 price target.

Here’s how Apple has traded over the past five sessions.

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