How Apple Inc. Can Do a Mid-Cycle iPhone X Refresh

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Earlier this year, Apple (NASDAQ: AAPL) released special-edition (PRODUCT) Red iPhone 7 and iPhone 7 Plus models. Unlike the regular iPhone 7-series phones, which came in storage capacities of 32GB, 128GB, and 256GB, the (PRODUCT) Red iPhones were available just in 128GB and 256GB configurations.

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These phones were short-lived -- Apple discontinued them after it hosted its Sept. 12 product launch event -- but the launch of those phones indicated that Apple isn't averse to making minor mid-cycle additions to its iPhone product portfolio.

In this article, I'd like to go over how Apple can do a mid-cycle refresh this year to keep the product line fresh and possibly counter the natural average selling price degradation that typically happens over the course of an iPhone product cycle. 

Go for the gold, Apple

Ahead of this year's iPhone launch event, KGI Securities analyst Ming-Chi Kuo indicated that Apple was having severe yield issues with the gold version of the iPhone X.

Those issues, Kuo said, would either lead Apple to delay the launch of the gold iPhone X or simply launch the devices in extremely low quantities.

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Since Apple is already likely going to have a tough enough time as it is filling demand for the iPhone X in silver and space gray, it probably didn't make sense to go with the second option and further frustrate iPhone X customers who wanted the phone in the gold finish.

However, once iPhone X manufacturing hits its stride, and as Apple improves the yields of its gold iPhone X manufacturing process, I could see Apple introducing a gold iPhone X mid-cycle to try to stimulate demand.

Now, I don't think the introduction of a gold iPhone X would dramatically change the general demand trend for the iPhone X. I'm confident, though, that those iPhone customers who would've opted for the lower-cost iPhone 8 or iPhone 8 Plus instead of the iPhone X primarily because they wanted the gold finish would move up to the iPhone X if it were introduced in gold.

Additionally, there will surely be customers who bought either the iPhone 8 or iPhone 8 Plus before the introduction of a gold iPhone X (assuming, of course, that one is coming during this product cycle at all) who will make the jump to the iPhone X once a gold variant is available.

And, finally, there will probably be those who bought the iPhone X in silver or space gray who ultimately decide to buy yet another iPhone X just for the gold finish.

None of these customer groups is likely to be particularly large, nor is the aggregate of these groups even likely to be all that big. But if Apple was already well along in the development of a gold iPhone X and just couldn't get it to market in time for the initial launch, why not bring it out later to try to wring out as much value as possible?

One more thing

In addition to simply bringing out a gold iPhone X mid-cycle, Apple could either limit it to just a 256GB storage configuration -- which could help enrich Apple's average selling prices -- or it could bring it out in 256GB and 512GB storage configurations.

The 256GB version could be priced identically to the silver and space gray models with the same amount of storage ($1,149), while the 512GB version could come at an ultra-high-end price point near $1,300.

Not only would it force all gold iPhone X buyers to buy models with at least 256GB of storage, but I'm sure a non-trivial percentage of potential gold iPhone X buyers would find value in a variant with 512GB of storage capacity.

That could help Apple stabilize iPhone average selling prices during the second half of its fiscal year 2018. 

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.