Apple's New Storage Pricing Could Hurt Average Selling Prices

By Markets

In this clip fromIndustry Focus: Tech, Motley Fool analyst Dylan Lewis and Fool contributor Evan Niu talk about two less-publicized improvements in the iPhone line that Apple (NASDAQ: AAPL) revealed at this month's unveiling: a significant improvement in the camera systems, and, more importantly, an upheaval of the base-level storage system.

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Listen in to find out how the new 32 GB/128 GB/256 GB storage system might affect sales for the iPhone 7 and 7 Plus.

A full transcript follows the video.

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This podcast was recorded on Sept. 16, 2016.

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Dylan Lewis: They're also touting some newcamera systems. The 7 and the 7 Plus both support 12-megapixel cameras. But I think one of themore noticeable things as well is the base-level storage. This is something that I've been expecting for a while.I was kind of thinking they might do it with the 6s. The 7 line runs 32 GB, 128 GB, and 256 GB of storage. That's up from the 16 GB and 64 GB and 128 GB on the iPhone 6s. They'vealso decided to increase the storage of new 6s phones to be in line with that. So, if you're buying a new 6s, you can get it and the base level will be 32 GB.I think that makes sense. I know we're moving to a lot of cloud storage,but it's nice to have some extra space on there,particularly if you're a metro commuterand you're in a lot of areas where you'll be offline.I know that I always appreciate that.

Evan Niu:It's weird, becauseI was always one of the few people that actually liked the 16 GB model, purely from an investing standpoint, because it's so bad for consumers thatit's actually really good for investors, if that makes sense. 16 GB isreally so insufficient that you have to upgrade to the mid-tier 64 GB at a minimum, which boosts your revenueaverage selling price and all this. So,from an investment standpoint,I was actually a huge fan,even though from a consumer standpoint,it's pretty bad and annoyingbecause it's so insufficient. But now, with this 32GB, it's a harder call,because people will have to ask...before, it was like, "There's no way you could get away with 16 GB,because that's just a joke." But now, with 32 GB, maybe I could." You have to actually think about the decision, do you spend the extra $100 to go to 128 GB, or can you actually stick with 32 GB? So,I think it'll be interesting to see what happens with ASPs going forward. But,at the same time, they just introduced SE, whichstarts at $400, and thatalready puts pretty bigdownward pressure on ASPs in general.

Lewis:Yeah, maybethe logic there was the SE isgoing to fill that niche andmake it a little bit easier. I know, when I got the 6s,it wasn't even a consideration. I want for the 64 GB model.

Niu:Exactly, right? And you knew,Apple made another $100.

Lewis:Just tobring it around to prices, because we talked about ASP -- average selling price -- the iPhone 7 will start at $650, and the 7 Plus will start at $769. That's the starting point there.

Niu:That'sinteresting too,because they're bumping the 7 Plus by an extra $20. It used to just be $100 more, and now it's $120 more.I tend to think that the extra $20 that they're charging isrelated to the camera system. That camera system is expensive.

Lewis:And the iPhone 7 Plus has a two-lens camera now,whereas in the past there was just one. The 7 maintains the one-lens camera. Certainlysome added features there,and a little bit of extra stuffunder the hood, so to speak. So, I think that makes sense.

Dylan Lewis owns shares of Apple. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.