Why the iPhone 6 May Cost More Than You Think

Updated from 8:20 a.m. to include additional details about next iPhone in the fifth paragraph.

NEW YORK (TheStreet) -- For the most part, Apple (AAPL) plays at the high end of the smart phone arena, with the iPhone 5s, which starts at $199 on a two-year contract, the company's best selling phone. Now, it looks as if Apple is about to go even further upscale, according to one analyst.

Jefferies analyst Peter Misek, who rates Apple shares "buy" with a $625 price target, believes that Apple has been negotiating price raises with carriers on the pending iPhone 6 (dubbed iPhone Air by some) to the tune of $100. So far, initial response from the various carriers has been "no", according to Misek, but given the lack of realistic competition from other handsets on the market right now, including the Samsung Galaxy S5, the argument could swing back in in Apple's favor.

"We think Apple might be able to get at least some of the increase with the add'l costs split between the carrier and consumer," Misek wrote in the note. "A $50 ASP increase would offset most of the negative iPhone 6 GM impact and remove a major bear argument."

Apple, by and large, has started the price of its newest phone at $199 for the 16GB version on a two-year contract. A price raise for the new iPhone would allow Apple to mitigate some of the negative impact to gross margin new products have on Apple. Misek notes that the preliminary bill of materials for the next iPhone could be up to 450 basis points lower than the 5s, perhaps due to sapphire glass potentially being used, as well as other components. "Our current estimates assume a 430bp decline, which we feel is conservative unless some of the components run into yield issues," Misek wrote. "We estimate a $50 ASP increase on the iPhone 6 would raise GM by 375bp and $100 by 700bp so a $50 ASP increase would offset most of the iPhone 6 COGS pressure."

If you liked this article you might like

Coolest Apple iOS 11 Features That You Might Have Missed

Apple iPhone 8 and iOS 11's Positive Reviews Bode Well for the iPhone X

Best Buy CEO -- We, Together With Amazon, Will 'Kill' the Competition

A Sprint/T-Mobile Deal Still Faces Big Hurdles, Especially for Sprint

How to Make a Deal Like Billionaire Investor Warren Buffett