Apple's high storage prices may be key to mitigating iPhone 17 Pro price rises

AppleInsider

Investment firm Morgan Stanley theorizes that Apple has long-term options to protect its iPhone 17 Pro prices from tariff hikes, including steering buyers to larger storage capacities, which have a greater profit margin.

Renders of a possible iPhone 17 Pro design

Even though Trump has now paused many tariffs, and even though it's become possible that Apple will get an exemption, the company won't be betting on that. Doubtlessly Apple will take any exemption it can get, but it also knows Trump changes his mind on a whim, so it will be looking to long game.

That's the opinion of analysts at Morgan Stanley, in a new note to investors seen by AppleInsider. They even see a route through the tariff turbulence that could see it able to keep its iPhone prices at the same level as before.

Or at least, to effectively do that. Morgan Stanley wonders if Apple will repeat what it did to storage in the move from the iPhone 14 Pro Max to the iPhone 15 Pro Max.

Apple can benefit from its high storage prices

In 2023, Apple started the iPhone 15 Pro Max at $1,199, but made a point of how it was doing so with 25GB. There was no longer a $1,099 model with 128GB, so Greg Joswiak could announce that this matched "last year's price with this level of storage."

So the iPhone 15 Pro Max starting price was greater than the iPhone 14 Pro Max, but Apple could say it was the same price considering what storage you were getting.

Morgan Stanley estimates that Apple's gross margin on the highest end iPhone storage is 10-15 points higher than on the lowest. So if Apple can push users to the higher storage models, the thinking is that it has some insulation room to absorb tariff costs.

The analysts think that could work if Apple produces the higher storage models in China, but also significantly ramps up other iPhone production in India. The company has already been said to be ultimately aiming at making 25% of all iPhones in India, and Morgan Stanley thinks it will accelerate that.

Currently, the analysts estimate that India is now producing 30 million to 40 million iPhones annually. With around 12 million going to Indian buyers, that means between 18 million and 28 million to be shipped worldwide.

Apple shipped 66 million iPhones to the US in the last 12 months, so India would have to dramatically increase its production. Morgan Stanley believes India might have the capacity to do so, but assumes it will take longer than six to twelve months.

Then, of course, India and all countries have been facing tariffs and could do so again in either 90 days or at the drop of a hat. Even as Trump has finally admitted that "some" firms had been hit badly by the tariffs, he's likely to reinstate them -- just not as heavily as with China.

Apple could use long upgrade cycles to its advantage

Another possibility, according to Morgan Stanley, is that Apple could make a benefit out of how long people hold on to their iPhones. Despite regular expectations of high supercycle upgrades, replacement iPhone cycles are lengthening.

So, posits Morgan Stanley, Apple could extend its Apple Card iPhone installment plan from 24 months to 36. That might not appreciably dent the upgrade sales, but it would mean that monthly payments would be lower.

Then, too, Apple in recent years has made a point of talking up carrier deals and trade-in values even during iPhone launch events.

Morgan Stanley thinks that Apple could increase its efforts in this and leverage more financing plans. Or that it can work more with carriers to offer more attractive trade-in values.

How this all plays out

All of this is supposition by Morgan Stanley, but it is based on how Apple has been expanding in India. And it is based on how Apple managed that iPhone 15 Pro Max price increase in 2023.

Morgan Stanley offers that if India can make 40 million iPhones for the US in 202, then China would still have to make 25 million for US demand to be fulfilled. At a 125% tariff rate, those 25 million iPhones would cost Apple about $17 billion in tariffs.

But the analysts maintain that if Apple only imports the highest-end storage models from China and leaves the rest to India, it could cut that tariff bill by more than half.

Morgan Stanley isn't saying that Apple will do all of this, or that it has inside information. It's saying that it's a plausible scenario, and one that Apple is likely to be considering.

As yet, however, the investment company has not raised its Apple target price. That was lowered to $225 immediately after the announcement of the tariffs, and is currently at $220.



Read on AppleInsider

hugo62

The real problem for Apple could well be international resentment and dissolution with America, its companies and services as a result of the policies of the Trump administration. America is less than 5% of the world’s population, yet Trump is flexing American muscle against its friends, whilst appeasing aggressors. All of which affect almost the entire planet. Such policy shifts are not going down well across greater Europe and within the UK… time will tell. However, i have already started to question the purchase of certain American goods and services.

mpantone

I think a larger issue is that Apple's upcharge on increased storage capacities are notoriously steep which is why the GM on larger capacity iPhones, Macs, and iPads is notably higher.

For Apple to "persuade" people to move to higher capacity devices would really require them to reduce the storage upcharges but that would erode GM on those SKUs.

In any case, the tariffs will be applied as a flat percentage across the board for all iPhone SKUs. The tariffs themselves don't affect GM, they would affect net income (deducted after gross profit).

As for the rest of the world seeing the USA in different lenses today, well there are already signs of that. Summer vacation travel bookings to the United States are already down considerably. What the current administration is doing with tariffs most definitely is not a goodwill gesture to the rest of the world. In the end people will likely lean toward regional travel (e.g., Europeans vacationing more in the EU than venturing off the continent).

mattinoz

This is pretty obvious given it is how they do it generally 

sitime

hugo62 said:

The real problem for Apple could well be international resentment and dissolution with America, its companies and services as a result of the policies of the Trump administration. America is less than 5% of the world’s population, yet Trump is flexing American muscle against its friends, whilst appeasing aggressors. All of which affect almost the entire planet. Such policy shifts are not going down well across greater Europe and within the UK… time will tell. However, i have already started to question the purchase of certain American goods and services.

Not to be too… well… this might be a new feeling for Western Europeans (being directly in the metaphorical-crosshairs of America — that Europe has benefited from in the past), but the rest of the world has been dealing with this for decades (crosshairs both metaphorical and actual). 

hugo62

SiTime said:

hugo62 said:

The real problem for Apple could well be international resentment and dissolution with America, its companies and services as a result of the policies of the Trump administration. America is less than 5% of the world’s population, yet Trump is flexing American muscle against its friends, whilst appeasing aggressors. All of which affect almost the entire planet. Such policy shifts are not going down well across greater Europe and within the UK… time will tell. However, i have already started to question the purchase of certain American goods and services.

Not to be too… well… this might be a new feeling for Western Europeans (being directly in the metaphorical-crosshairs of America — that Europe has benefited from in the past), but the rest of the world has been dealing with this for decades (crosshairs both metaphorical and actual). 

Unjustifiably in the cross hairs. That Europe has “benefitted” from the past…. Is a two way streets, as America has benefitted also from that relationship. It is also interesting that 15 previous American presidents spanning 80 years were happy with the American / European set up. And along comes a fragile egotistical con man intent on being a dictator….to upend the show. Also a VP calling non American people “peasants” is disgusting and is why Europeans have American companies and services in their sights.   I suspect the fearful media in USA are not reporting on the collapse 25% in France, 28% in Germany, 40% in Denmark of vacation cancellations to America. You reap what you sow in this world….. Just ask a Russian….

edited April 11

entropys

I think it fair to say that the USA has contributed far, far more to the ledger than Western Europe. There are tens of thousands of yank dead in European cemeteries that suggest otherwise. As a distant observer, I would suspect that Europe resents that, as it does resent all uppity former colonies that have done well. But the USA most of all.
my own country just has the general 10% tariff applied, so I reckon we won’t notice it. The risk for us is our massive trade surplus with China (that surplus means China has us by the short and curlies), the reverse situation for China with the USA (which will have China by the short and curlies). If China contracts and stops buying our minerals, well….

entropys

Anyway, Apple margins are such there is a lot of room to absorb tariffs. Plus emphasis on subscriptions in recent times.
I don’t think the full cost of any tariff will be fully passed on to consumers.

this places Apple in a stronger position than other computer companies.

edited April 11

nubus

hugo62 said:

The real problem for Apple could well be international resentment and dissolution with America,

Apple is beyond U.S. Cook is (mostly for the better) no Musk.Replacing Apple will be hard in the EU - with China it is a different story but that was already the case. For now it seems the Chinese government isn't going after Apple.

The minimum tariff is 10%. That is 20-25% cut of margin and will directly reduce the value of Apple. Add that Americans will have less to spend due to inflation from other products, job losses, and stocks. Again something that will affect discretionary spending. Supersizing products worked for 15 Pro but mostly it fails. iPad Air, the muscle-pad, is beefed up but so is the price. It doesn't sell.

hugo62

entropys said:

I think it fair to say that the USA has contributed far, far more to the ledger than Western Europe. There are tens of thousands of yank dead in European cemeteries that suggest otherwise. As a distant observer, I would suspect that Europe resents that, as it does resent all uppity former colonies that have done well. But the USA most of all.
my own country just has the general 10% tariff applied, so I reckon we won’t notice it. The risk for us is our massive trade surplus with China (that surplus means China has us by the short and curlies), the reverse situation for China with the USA (which will have China by the short and curlies). If China contracts and stops buying our minerals, well….

There is more to the ledger than financial numbers…. American soft power and political objectives were  support by European countries. In terms of dead Americans involved in wars, yeah you charged European countries dearly for that… UK repayments only finished in 2008.  And if you want to talk about war dead, European countries have plenty war dead supporting the American war “ on terror” so there will be no lectures about that, thank you Chinese Govt didnt steal your jobs…. American business in the greedy pursuit of profit maximisation went to China…. Apple / Microsoft / Hewlett Packard being the prime examples.

edited April 11

momoaz

Only when Apple's AI model requires 200GB of storage on your device will we see base storage at a measly 500GB (like they did with ram). When harvesting ai data outweighs the cash grab for storage upgrades, will this never ending pain end. I buy upgraded storage on everything for the premium, but I see sooo many customers out of space on a daily basis it makes it hard to perform service for them. I've become a data pusher not a repair tech.

kellie

hugo62 said:

The real problem for Apple could well be international resentment and dissolution with America, its companies and services as a result of the policies of the Trump administration. America is less than 5% of the world’s population, yet Trump is flexing American muscle against its friends, whilst appeasing aggressors. All of which affect almost the entire planet. Such policy shifts are not going down well across greater Europe and within the UK… time will tell. However, i have already started to question the purchase of certain American goods and services.

I think your anti-Trump and anti-American feelings are biased.  The EU is certainly trying to assert its leverage over tech platforms. The UK is trying to to force Apple to build a backdoor into customer encrypted content which would allow the UK to access and decrypt content from anyone, not just UK citizens.  

And most fundamentally, it’s American innovation that has benefited the world, especially in the realm of computers and tech platforms (not exclusively but predominantly).  

Trump and the majority of Americans are tired of supporting the world. Be it supporting NATO, where the US has spent hundreds of billions if not trillions of dollars defending Europe while the Europeans only spent a small fraction of what was expected on their own defense. And in return we get anti-American comments such as yours.  

American politicians have failed America and have sent too many resources to the world.  Show me any other country that has been as generous as America in giving to other countries. Well it’s all about to change.  

kellie

mpantone said:

I think a larger issue is that Apple's upcharge on increased storage capacities are notoriously steep which is why the GM on larger capacity iPhones, Macs, and iPads is notably higher.

For Apple to "persuade" people to move to higher capacity devices would really require them to reduce the storage upcharges but that would erode GM on those SKUs.

In any case, the tariffs will be applied as a flat percentage across the board for all iPhone SKUs. The tariffs themselves don't affect GM, they would affect net income (deducted after gross profit).

As for the rest of the world seeing the USA in different lenses today, well there are already signs of that. Summer vacation travel bookings to the United States are already down considerably. What the current administration is doing with tariffs most definitely is not a goodwill gesture to the rest of the world. In the end people will likely lean toward regional travel (e.g., Europeans vacationing more in the EU than venturing off the continent).

Anti-Americanism is a two way street.  There’s no reason to believe that there wouldn’t be a reciprocal reduction in American travel to Europe.