🍎 What’s going on with Apple?

Jefferies cut its Apple rating to Underperform and lowered its target price to $263.66 (current price: $308).

The main reason is that, according to supply-chain checks, Apple allegedly backed away from the ambitious fully-glass iPhone that could have been unveiled in 2027 for the 20th anniversary of the smartphone.

The reason is problems with mass production: too high a percentage of glass enclosures came out with defects, making such an iPhone too expensive and difficult to manufacture.

And here Apple faces an unpleasant problem. The AI boom has driven up memory prices, and the company needs increasingly more DRAM for local AI functions in smartphones. That is, iPhone production costs are rising at the very moment when Apple hasn’t yet demonstrated a strong enough AI product that would make buyers willing to pay significantly more.

That’s why a fully glass iPhone mattered not only as a beautiful design. It could serve as a reason to raise the average device price and partially offset the higher costs of components.

Additionally, Jefferies is skeptical about the pace of Apple Intelligence development, and Apple itself is already testing memory from China’s CXMT as a possible alternative to more expensive suppliers.

So now the math for Apple is fairly simple: memory is getting more expensive = iPhone production costs are rising = prices are desirable to increase = but to do that, you need to give the customer something sufficiently new. And for that, it’s still more difficult.

The irony is that for years Apple profited from a premium markup. Now the premium markup is being set not by Apple, but by chip suppliers.

Mykyta Huppal | ProInvestments

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