Apple shares rise 4% due to reduced iPhone production costs
Production cuts push Apple stock 4% higher
Apple Inc. is experiencing cost reductions in its iPhone 16 Pro models, which are contributing to improved margins. These savings are projected to reach $3.7 billion across 250 million units.
Key Takeaways
- Manufacturing costs for the iPhone 16 Pro Max are 5% lower than its predecessor, boosting gross margins by 320 basis points.
- Bank of America analyst Wamsi Mohan maintains a “Buy” rating on Apple with a price target of $256, reflecting an 8% upside.
- Apple’s fourth-quarter revenue of $94.9 billion surpassed expectations of $94.56 billion.
Cost Reductions in Pro Models Drive Margin Improvements
Apple’s latest teardown analysis, conducted by Bank of America, revealed a 5% reduction in manufacturing costs for the iPhone 16 Pro Max compared to its predecessor. Year-over-year savings, when adjusted for memory costs, reached 8%, translating to $3.7 billion across 250 million iPhones, reports Benzinga.
These improvements are expected to add more than 100 basis points to product gross margins as production ramps up. The cost reductions underscore Apple’s efficiency in scaling its supply chain and optimizing its production processes. While base models saw increased manufacturing costs, the Pro and Pro Max variants—offering higher price points and margins—have been pivotal in maintaining Apple’s profitability.
Analysts Maintain Confidence in Apple’s Growth
Bank of America analyst Wamsi Mohan reaffirmed a “Buy” rating on Apple with a price target of $256, representing an 8% upside.
Apple Inc (AAPL) share price dynamics (Jul 2023 - Jan 2025) Source: Investing.com
The consensus price target among analysts stands at $245.17, with some projections as high as $325. Despite the optimism, some warn that investor expectations for Apple’s cost savings and market growth may be overly optimistic.
Strong Quarterly Performance and Stock Movement
Apple’s fourth-quarter revenue reached $94.9 billion, surpassing analysts’ estimates of $94.56 billion. This performance reflects Apple’s ability to drive demand for its premium products despite broader economic uncertainties. On Wednesday, Apple’s stock gained 1.97%, closing at $237.87, and added another 0.31% in after-hours trading to reach $238.60.
Apple’s focus on premium models like the Pro and Pro Max remains central to its growth strategy. These high-margin products have not only offset increased costs in base models but also reinforced Apple’s brand as a leader in the premium smartphone market. By continuing to innovate and optimize production, Apple is poised to maintain its leadership while navigating a competitive landscape.
Additionally, Apple Inc. announced an 18% pay increase for its Chief Executive Officer Tim Cook, raising his total compensation to $74.6 million in 2024, up from $63.2 million the previous year.
