Following positive Sept-17 results from an Apple supplier, AMS AG, we continue to believe the mix of iPhone X remains favorable and will drive overall iPhone ASPs 15% higher (Street up 8%) in FY18.
Who is AMS. AMS is a European semiconductor company, which supplies optical components to Apple that enables 3D sensing on the iPhone X. 3D sensing is a premium feature going into the iPhone X, which will allow facial recognition and other augmented reality applications.
What AMS Said. AMS reported q/q revenue growth of 45% in the Sept-17 quarter, but more impressively, guided Dec-17 revenues to be up 68 – 83% q/q (mid point up 75%), which was meaningfully stronger than analyst expectations. The company implied the better than expected guidance was due to their 3D sensing optical business which is in the iPhone X. The start of high volume shipments began middle of the third quarter, but given the better than expected Dec-17 guidance we believe demand will continue to increase.
What Does This Mean For The Apple Model? Directionally its positive for the mix of iPhone’s that will be in the form of the iPhone X. Since the AMS component is new, we can not build a growth rate off of the Dec-17 guidance to better triangulate iPhone X demand. That said, upside to AMS Street estimates do suggest Apple has a more favorable outlook to iPhone X demand than analysts have been projecting.
iPhone ASP Barrier A Fallacy. As we highlighted in a Apple preview note this morning, we believe these data points further indicate strong demand for iPhone X, which will lead to better than expected ASP acceleration in 2018. At first take the $1000 starting price iPhone feels like a deal breaker. We think that’s a fallacy, and consumers will take a step function jump in what they’re willing to spend on an iPhone. The average ASP (unweighted) for the iPhone X is $1074, compared to $809 for the iPhone 7, a 33% increase, and the average iPhone 8 ASP of $824, 2% above the iPhone 7. It’s been well documented an increasing number of iPhone buyers are moving to monthly installments, whether through the iPhone upgrade program, or similar programs from most global carriers. In total we estimate about 75% of new global iPhones are purchased via installment programs. Last year using the iPhone Upgrade Program, the iPhone 7 plus 128GB was $40.75 per month, compared to the iPhone X 64GB at $49.91 per month. This translates to a $9.16 monthly increase, and an ASP increase from $849 (iPhone 7 Plus 128GB) to $999 (iPhone X 64GB), up 17%. We think 22% of iPhone buyers will view the $9 monthly increase as an acceptable monthly increase to get the latest iPhone.
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