Trefis expects revolutionary innovation from Apple Inc. (NASDAQ:AAPL)’s den to maintain premium pricing


Analysts at Trefis have updated their comment on Apple Inc. (NASDAQ:AAPL), highlighting opportunities and challenges for the company. Trefis has a price target of $144 on the stock of Apple, which it says the company could exceed or fall short of depending on how it executes into the future.

As Apple Inc. (NASDAQ:AAPL) expands and diversifies its revenue stream, the company is both unlocking new growth and getting exposed to more competition. That explains why besides a strong strategy, Apple needs strong execution to defend its market share in the various product categories or grow it.

Although Apple primarily generates revenue from the sale of hardware (especially the iPhone), the company is also expanding into service with products such as Apple Watch and Apple Music.

Pricing power

According to Trefis, Apple Inc. (NASDAQ:AAPL) will have to work on bringing revolutionary innovation to its products to improve or at least maintain its pricing power. Additionally, building a robust ecosystem is also an opportunity for Apple to maintain its pricing power and improve ASP.

Market share

Apple is taking market share from Android competitors. Recent data showed that a significant portion of iPhone sales in China in the last quarter went to former Android owners.

To maintain its growth or improve it, Trefis notes that Apple will have to work harder on taking market share from the competition.

Android could slow down Apple’s growth

Trefis is worried that if Apple Inc. (NASDAQ:AAPL) chooses to only make superficial upgrades on its products, the company risks losing its pricing power and market share to rivals.

According to Trefis, Android handset manufacturers are actively working to improve their competitive advantage and they pose serious threat to Apple’s smartphone business.

Downside scenario

Trefis estimate that Apple Inc. (NASDAQ:AAPL)’s ASP and gross margin are $660 and 48%, respectively. If Apple fails to bring meaningful innovation to its products, Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) and its Android partners could drive Apple’s ASP down to $500 and margins down to 35%. In that case, Trefis sees Apple falling short of its price target by 20%.

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