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Is Apple's iPhone XS Max Price Crazy? Or Crazy Smart?


image courtesy of Apple

It's fitting that Apple's newest and largest iPhone, announced Wednesday, will be called iPhone XS Max. Pushing prices to the max, after all, is the only way Apple is growing iPhone-related sales these days. The new XS Max starts at $1099, making it the most expensive iPhone ever. A 512 GB version of the phone will set you back $1,449. Also fittingly, the new phone will be available in a gold trim.

Apple's average selling price has gone from $650 last year to an expected $751 in fiscal 2018, according to Visible Alpha Consensus Data.

There are a few ways to look at the pricing strategy: As my colleague Jack Hough pointed out to me: "That's still a bargain compared with your $50 electric tooth brush. Think about the time you spend with your phone versus your toothbrush."

The problem is there's a shrinking pool of people who want to buy or can afford Apple's most important product. Unit sales of iPhones are expected to grow just 1% in Apple's fiscal year ending this month, according to Visible Alpha.

Thanks to the higher prices, total iPhone revenue is still expected to grow 16% this year, to $165 billion.

The strategy is working for investors - Apple is up 37% in the last 12 months - but it's making Apple's annual iPhone announcement rather awkward. (Apple shares fell 1.2% on Wednesday, to $221.07).

Read more : Apple's iPhone Event Was a Snoozer. But Don't Sleep on the Stock

In introducing the new phones, Apple walked a fine line - touting its most expensive phones, while saving some excitement for its new mid-priced phone called the iPhone XR, which starts at just $749.

In his latest video voiceover, Apple's chief design officer, Jony Ive, describes the XS Max and its smaller sibling, the XS, as "utterly uncompromising." As for the new cheaper phone? They come in a "range of new finishes offering more choice to more people."

To be fair, the iPhone XR still sports Apple's latest chip technology; it's likely to be blazing fast. The main compromise comes in the display technology, which Apple likes to promote as a big differentiator versus Android phones.

Apple has built its reputation around premium products at premium prices. A cheaper price has rarely worked well as an Apple selling point. But growing its $1 trillion market value could now require finding more success at lower price points. Jony Ive & Co. will need to think more about the compromises.

A version of this article first appeared in Review & Preview, a new daily email from Barron's. Sign up here and every evening we'll review the news that moved markets during the day and look ahead to what it means for your portfolio in the morning.

Write to Alex Eule at alex.eule@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Technology , Stocks



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