If you ask most people about the cost of the iPhone, they’re likely to say they’re expensive, but provide good value for the money. Some might even say Apple (NASDAQ:AAPL) has enriched their lives with its iconic device.
However, investment firm Needham believes that Apple is no longer the innovative company it once was and that simply “good enough” is hurting it and its shareholders.
The price of the iPhone has not kept up with inflation, Needham analyst Laura Martin said. As such, shareholders have had to eat an opportunity cost of 13% based on her perception of a lack of innovation.
“Every year, AAPL spends many hours telling analysts, investors and consumers about new features, tools, capabilities, cameras, and colors,” Martin wrote in a note to clients. “However, Wall Street bases valuation on revenue growth and [free cash flow]. Since 2019, same-store iPhone prices have not kept up with inflation. We assume that AAPL would raise prices if consumers would tolerate it. We link AAPL’s inability to increase prices to its inability to introduce new killer apps and differentiated features that would give it pricing power above inflation.”
Martin has a Hold rating on Apple shares and no price target.
Apple unveiled the latest iPhone lineup last month, including the three core models — the iPhone 17, iPhone 17 Pro and iPhone 17 Pro Max. It also announced the iPhone Air, a slimmed-down smartphone that many have praised as an example of Apple’s ability to keep innovating.
However, that may not be enough for the investment community, given that Martin believes Apple has lost pricing power (the iPhone Air starts at $999), which she believes many on Wall Street defined as “the ability to increase prices faster than inflation.”
Even though the iPhone Air received plenty of praise from the media, reviewers and industry analysts, consumers may not be responding in the same way. Early sales data suggests that the iPhone 17 and iPhone 17 Pro are outselling the iPhone Air, according to Bank of America.
“Our investment conclusion is that AAPL’s lack of innovation has lowered public shareholder value by 13% over the past 6 years (2019-2025), through its inability to raise prices on its 3 core same-store iPhone models by enough to keep pace with inflation,” Martin added.