RBC: There's one thing Apple needs to do to save the iPhone

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  • Apple reported weaker than expected iPhone sales growth last quarter, prompting concerns that the iPhone “supercycle” may be over.
  • The Silicon Valley company can spark iPhone sales growth by making the phones cheaper, an RBC Capital Markets analyst says.
  • You can view Apple’s stock price in real time here.

Apple‘s iPhone is not done yet.

Despite sluggish iPhone X sales sparking fears that this might be a bellwether for weaker iPhone demand, the company may have one way to save its seminal smart phone – make it cheaper.

The company has slowly begun releasing details of its next generation of iPhones with plans to release an updated version of its iPhone X, a larger version, and a budget-friendly model with an LCD screen (instead of an OLED screen like its higher-end counterpart).

“The most interesting dynamic to watch will be pricing, specially considering the limited success iPhone X had with $US1,000+ ASP,” RBC Capital Markets analyst Amit Daryanani wrote in a note to clients. “We think the LCD model could drive the highest volumes (~35-50% of volume) and could be priced at $US700+.”

Apple’s iPhone sales slumped in the first-quarter of 2018, falling 0.9% year-over-year to 77.3 million units, missing the Wall Street consensus of 80.2 million units.

While the shortfall in iPhone sales was compensated by the significantly higher average iPhone price– $US796, more $US100 above the average iPhone price last holiday season – some analysts believe the high price is scaring away consumers.

The next generation of iPhones can be priced at $US700+, $US899 and $US999, Daryanani said. “This would effectively lower the average ASP’s but we think will drive a stronger unit growth,” he added.

Still, Daryanani believes Apple’s focus will shift to its services segment, which has grown a lot faster than the pace of iPhone sales.

He maintained his price target of $US205 per share, and a “Outperform” rating.

Apple’s stock was up 2.13%, but down 1.96% for the year.

Read more about how Apple has taken a big stance that has largely insulated it from the privacy concerns surrounding Google and Facebook.

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