Demand for Apple's Priciest iPhone Is Better Than Expected: Kuo

Demand for Apple Inc.’s (AAPL) most expensive new iPhone, the XS Max, is exceeding expectations, according to a prominent analyst.

Two of the Cupertino, California-based company’s premium smartphones, the XS and XS Max, hit stores this past weekend, with starting prices of $999 and $1,099, respectively. In a research note, reported on by MacRumors, TF International Securities analyst Ming-Chi Kuo claimed that the more expensive Max model has so far proved to be the most popular choice among consumers. (See also: Why Apple Is Selling Its High-End Phones First)

Appetite for the XS Max is “better than expected” said Kuo, adding that the 6.5-inch model is outselling the smaller and cheaper iPhone XS by three to four times, even though the 512GB storage version faces “serious shortages” because Samsung Electronics Co. Ltd. is the only reliable supplier of NAND Flash memory.

“We have determined that the demand for XS Max is better than expected (3–4 times that of XS),” the analyst wrote. “The gold and space-grey colors are significantly more popular than the silver. 256GB is the most popular, and 512GB is subject to a serious shortage because only Samsung can currently ship NAND Flash well. We are positive that XS Max shipments will grow steadily in 4Q18 thanks to demand from Asia market and the gift season.”

In the note, Kuo also reported “much better than expected” demand for the Apple Watch Series 4. However, he went on to warn that availability is likely to remain tight until secondary supplier Compal Electronics Inc.'s  begins mass production in November.

“Apple Watch Series 4 demand is much better than expected” Kuo wrote. “The capacity of the assembler Quanta Computer Inc. is full already; therefore, the supply cannot improve significantly until second supplier Compal’s mass production for Apple Watch Series 4 starting from November. We have increased the Apple Watch shipment forecast in 2018 from 18mn to 18.5–19.5mn units.”

Kuo noted that the iPhone XR faces similar supply-related issues ahead of its launch next month as both Japan Display Inc. and LG Display Co. Ltd. are experiencing difficulties making enough displays for the phone.

The analyst said he’s confident that these issues should “markedly improve” before the XR is available to pre-order Oct. 19, adding that the cheaper new iPhone, which is set to retail at a starting price of $750, will likely offer consumers enough improvements to trade in their older models. (See also: Apple Options Traders Bet Shares Will Rise 15%)