Apple may raise iPhone 18 prices after Q2 pull-in, says Jefferies

Jefferies analysts report robust second-quarter iPhone demand, citing 22% year-over-year equipment sales growth from major U.S. telecoms, and project an 8% year-on-year increase in iPhone shipments for the June quarter, exceeding industry estimates. Looking ahead, Jefferies anticipates Apple will raise iPhone 18 prices by $50 (4-5%) to offset rising component costs and potential China tariffs, though this increase may barely cover the added expenses. The firm also highlights Apple's accelerating shift of iPhone production to India, expecting 18% of iPhone 18 units to be made there by H2 2025, but warns of potential margin pressure from lower yields and higher logistics costs, despite supply chain security and localization requirements driving the move. Despite the strong demand, Jefferies does not foresee a stock re-rating based solely on current data.

Analysis

Analysis from Jefferies indicates a robust demand environment for Apple's iPhone, with equipment sales at major U.S. telecoms growing 22% year-over-year in Q2, the highest rate in six quarters. This has led Jefferies to forecast an 8% YoY increase in June quarter iPhone shipments, a figure substantially higher than estimates from industry trackers Counterpoint (4%) and IDC (1.5%). However, this strong top-line outlook is tempered by significant margin pressures. Jefferies anticipates Apple will implement a $50 price increase on upcoming iPhone 18 models to counteract rising component costs and potential China tariffs, but cautions this hike may only just cover the increased expenses, suggesting minimal benefit to profitability. Furthermore, Apple's strategic acceleration of production to India, projected to reach 18% of iPhone 18 units in H2 2025, introduces additional financial headwinds. While beneficial for supply chain diversification, this shift is expected to incur lower yields and higher logistics costs, potentially compressing margins further. Consequently, despite strong demand signals, Jefferies does not foresee a stock re-rating based on this information alone, highlighting a precarious balance between sales momentum and profitability challenges.

Key Decisions for Investors

• Investors should closely monitor Apple's gross margin guidance in subsequent quarters, as the expected iPhone price hike may be insufficient to offset rising component, tariff, and logistics costs.
• Consider that consensus shipment forecasts may be too conservative given Jefferies' 8% growth estimate, but weigh the risk that the observed demand strength was a temporary pull-forward ahead of potential tariffs.
• Evaluate Apple's strategic shift to India as a long-term de-risking move that could introduce near-term margin pressure; look for management commentary on production yields and cost efficiencies from the region.
• Maintain a cautiously optimistic stance, as the positive demand signals are currently counterbalanced by explicit warnings on profitability from multiple operational and geopolitical factors.