IPhone customers are shifting to new higher-memory models

Investors should be interested in how many iPhones Apple Inc. is selling, but they should also note which versions consumers are buying, since more sales of higher-end models lead to upside in both gross margins and earnings.

And that’s exactly what appears to be happening, based on RBC Capital Markets’ survey of more than 6,400 people.

Analyst Amit Daryanani noted that 16 per cent of participants said they intend to purchase iPhones with higher memory (128 GB), up from 12 per cent last year. Meanwhile, the 16-GB version appears to be heading in the opposite direction, with 33 per cent planning to buy this lower-memory device, versus 40 per cent in 2014.

A healthy 40 per cent anticipate buying the bigger (5.5-inch) iPhone 6s plus.

The survey also showed that 20 per cent of users plan to use Apple’s iPhone upgrade program. Applying that number to the company’s U.S. install base of about 200 million units produces roughly 15 U.S. cents in additional earn- ings per share. These results, coupled with a favourable calendar, have Daryanani anticipating healthy iPhone unit growth in the December quarter, and that should calm some investor fears.

“The shift-up in memory has two important benefits — it bolsters average selling prices higher and provides further margin tailwind,” the analyst said in a research note.

He estimates Apple has gross margins of more than 85 per cent on memory.

As for the Apple Watch, about 13 per cent of respondents plan to buy one this year. That’s almost a 200-basispoint increase from RBC’s previous survey.

A significant amount of those surveyed (21 per cent) still aren’t sure, so Daryanani expects to be more bullish on Apple in the coming year if they can be convinced to buy.

The analyst currently rates the stock at outperform with a US$150 price target, representing an upside of about 35 per cent.