Strong iPhone 17 cycle giving better than expected revenue, says Bernstein's Mark Newman

Key Concepts

• iPhone 17 & 18 Cycle: Anticipated sales performance of upcoming iPhone models.
• Memory Prices: Significant increase in the cost of memory components impacting device pricing.
• Apple Intelligence/Siri 2.0: Apple’s upcoming AI initiative and its potential impact on stock performance and user demand.
• Unit Growth: The rate at which the number of iPhones sold increases or decreases.
• Capex: Capital Expenditure - funds used by a company to acquire or upgrade physical assets such as property, buildings, and equipment.
• Gemini (Google): Google’s AI model, partnered with Apple for Siri 2.0 development.
• Fiscal Year 2027: The financial year ending in 2027, used for forecasting.

Impact of Rising Memory Prices on iPhone Sales & Apple’s Strategy

The discussion centers around the anticipated impact of a substantial increase in memory prices on Apple’s iPhone sales, particularly for the iPhone 17 and 18 cycles. Mark Neumann, Senior Analyst at Bernstein, estimates that memory price increases could drive iPhone prices up by approximately 15%. This translates to roughly a $150 increase per device, a “big, meaningful chunk” as noted in the conversation.

Despite this potential price hike, initial forecasts for the iPhone 17 cycle remain strong, largely due to a replacement cycle driven by users with older devices (4-5 years old) following the COVID cycle. However, the analyst anticipates a flattening of unit growth for the iPhone 18 due to the higher price point. Specifically, initial projections of 5-6% unit growth for fiscal year 2027 have been revised down to roughly flat growth. Apple is expected to pass these increased costs onto consumers, potentially leading to a slight downward shift in the mix of models purchased (consumers opting for lower-spec versions) and a reduction in overall unit sales.

Apple’s Position in the AI Landscape & the Importance of Apple Intelligence

The conversation also addresses Apple’s perceived lag in the “AI wars” and its strategy to maintain its stock value and market position. While previously criticized for not aggressively pursuing AI development, Apple appears to be leveraging its strong iPhone sales to remain competitive.

Neumann emphasizes that, while memory prices are a significant factor, the larger driver of Apple’s stock price this year will be the success of Apple Intelligence (Siri 2.0). He states, “A larger driver of the stock price this year is really going to be what happens with Apple Intelligence or Siri 2.0.” The partnership with Google and the integration of Google’s Gemini AI model are viewed optimistically, with expectations of a “pretty interesting and meaningful step forward” this year.

He believes Apple Intelligence has the potential to boost both unit growth (as consumers seek the latest technology) and revenue through monetization of new services. The analyst acknowledges that Apple is “two years late” to the AI race but anticipates a significant improvement in its AI capabilities in the coming year. The recent eight-week losing streak experienced by Apple stock is considered to be behind them, contingent on demonstrating progress with Apple Intelligence.

Logical Connections & Data Points

The discussion establishes a clear connection between rising input costs (memory prices), potential consumer response (delayed purchases, lower-spec models), and the overall impact on Apple’s unit sales and revenue. The initial strength of the iPhone 17 cycle is presented as a mitigating factor, but the long-term outlook for iPhone 18 is more cautious.

The conversation then pivots to the strategic importance of Apple Intelligence as a potential catalyst for growth, both in terms of hardware sales and service revenue. The analyst frames Apple’s position as one of leveraging its existing strengths (iPhone sales) while simultaneously addressing its weaknesses (AI development) through strategic partnerships and innovation.

Notable Quotes

• Mark Neumann: “I actually think we did a lot of analysis on memory prices because that's a hot topic right now…But saying that we still think actually a larger driver of the stock price this year is really going to be what happens with Apple Intelligence or Siri 2.0.”
• Analyst (regarding price increase): “That’s a that’s a big, meaningful chunk.”

Synthesis/Conclusion

The analysis suggests that Apple faces a challenging environment with rising component costs potentially impacting iPhone sales. However, the company is expected to navigate these challenges by passing costs onto consumers and leveraging the anticipated success of Apple Intelligence to drive demand and revenue. The success of Siri 2.0, powered by Google’s Gemini, is identified as a critical factor for Apple’s stock performance and future growth, potentially offsetting the negative impact of higher prices and maintaining its competitive edge in the evolving technology landscape. The iPhone 17 cycle is expected to be strong, but the iPhone 18 cycle will likely be impacted by price sensitivity.