Bernstein: 26% of Apple’s operating profits come from upselling storage

Upselling is a large and growing contributor to Apple’s bottom line, says analyst Toni Sacconaghi, but 5G could reduce the need to load up on NAND.

From a note to clients that landed on my desktop Tuesday:

Apple makes a LOT of money from upselling consumers to higher storage configurations in its products – in fact, we estimate that Apple will generate $18B in revenues (at ~90% GMs) from upselling consumers to higher NAND configurations in FY 19 – contributing roughly 26% of total company operating profits…

We performed a similar analysis 7 years ago and found that upselling NAND added about 20% to total company operating profits, (vs. 26% today), despite the emergence of Apple’s large, high margin services business. We believe that the principal reason that NAND is such a large portion of the profit stream is that handset OEMs have increasingly shifted profits to add- ons in the spirit of keeping base prices competitive.

A key question/risk is whether 5G networks and cloud-based storage may mitigate the NAND upgrade imperative going forward, thus undermining Apple’s profitability. While possible, Apple is somewhat hedged with its iCloud storage offering.

Maintains Market-Perform rating and $205 price target. 

My take: With Apple trading for roughly $205 as I write this, Sacconaghi is basically treading water.

See also: Apple above $211: Look who’s underwater now


  1. Robert Paul Leitao said:
    Has Toni bought a car lately? I’m surprised he’s surprised Apple makes various options available on the company’s hardware products and profits from the variety of options made available. Obviously, by providing upgrade options such as greater storage capacity consumers aren’t forced to pay more for options they don’t need or desire. It provides the ability to better meet the individual needs of hundreds of millions of iPhone owners. The fact that the company makes a profit on hardware options certainly isn’t a crime. I’m surprised he considers it even noteworthy.

    While making a profit isn’t a crime, that lowly $205 price target looks just a little criminal to me.

    September 3, 2019
    • Robert asked: “Has Toni bought a car lately?”

      In Toni’s defense, I found these phrases on the cutting floor:

      “… similar to what we see in myriad other industries (e.g. car companies and expensive options; airlines with baggage and change fees; servers with expensive support contracts, etc.).”

      September 3, 2019
    • Michael Thompson said:
      Antonio (his real first name) and his wife Michelle own a 6 bedroom/6 bathroom house in Southampton. I have his address, but I won’t dox the degenerate criminal. They sold a condo in NYC for about $5 million to a Chinese incorporated real estate company out of Long Beach, CA within the last year plus.

      Let me guess, Toni is against the trade war versus our enemy. There’s no one on the board that can lose more than me when it comes to a trade war with Chine and I FULLY support it. Double the tariffs today.

      Very interesting information that can easily be found about OUR BOY “Toni” the Lying Scumbag Sacconaghi.

      Was the purchase of his condo a potential payback for a deceitful job well done? I didn’t know that the pay grade for analysts allowed them to own at least two multimillion dollar properties simultaneously.

      When is real journalism going to happen? A real journalist would likely find CRIMINALITY in OUR BOY’S actions.

      September 4, 2019
  2. Fred Stein said:

    More than two decades ago, I made a similar calculation. More than 100% of HP’s net profit came from the printer division. Probably it was all ink cartridges.

    The good news for investors is the new iPhone 11 cameras will likely drive more demand for storage. And a new generation of Edge AI, or AI on the device, may also drive demand.

    I do recall Luca saying that declining NAND would be positive. There’s some cyclicality in the storage costing.

    As a consumer, I’m getting clipped by an extra $60 max, for this ‘minibar’ pricing. That comes to about 6 pennies a day.

    September 3, 2019
  3. David Emery said:
    Apple’s price for RAM has always been pretty appalling. In Phones, Pads and some Macs, you couldn’t use 3rd party stuff, either.

    September 3, 2019
    • Aaron Belich said:
      Apple’s integration of hardware, including top shelf RAM and storage is worth the premium.

      September 3, 2019
  4. Gregg Thurman said:
    Ahh, let’s see, a one time charge of $100 for 256 GB of storage for as long as you own your iPhone (2, 3, 4 years?), or $5 a month for 256 GB cloud storage for 2 years? Which is the better deal? [hint: it ain’t the cloud storage].

    Apple prices its products according to the value derived by the customer, not the cost of goods sold.

    Sacconaghi should punked for making such a useless observation.

    September 3, 2019
    • Gregg Thurman said:
      I’m correcting myself (should have checked before I posted).

      200 GB of iCloud storage costs $2.99 (plus tax if applicable) per month, or in the example above $72 for two years. Onboard memory gets cheaper after 3 years ($108 iCloud vs $100 onboard).

      Apple is essentially charging the same for memory no matter which option you choose. That being the case I choose to have the memory onboard.

      September 4, 2019

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