Apple Inc. (AAPL) maintains its "Buy" rating from BofA Global Research, with a price objective of $256, following a teardown analysis that highlights improved gross margins for its Pro model iPhones. The analysis reveals that the bill of materials (BOM) costs for the iPhone 16 Pro Max are 5% lower than those for the iPhone 15 Pro Max, contributing to a 320 basis point increase in gross margins. This cost reduction is attributed to Apple's strategic focus on lowering expenses for its premium models as the customer mix shifts towards higher-end products.
The report underscores Apple's ongoing efforts to enhance margin resiliency, driven by both its services mix and cost efficiencies in iPhone production. Notably, the iPhone 16 Pro Max's main electronic assemblies, which account for 50% of the total manufacturing cost, remained flat in dollar terms compared to the previous model, despite a 74% increase in memory costs. BofA notes, "Apple is trying to insource the baseband modem from Qualcomm...at Apple’s scale these add up to meaningful savings."
Apple's vertical integration strategy, including potential insourcing of components like the baseband modem and WiFi/Bluetooth chips, is expected to yield significant cost savings, potentially boosting product gross margins by over 100 basis points. As of January 15, 2025, Apple shares are trading at $236.99, up 1.59% from the previous close.