Apple’s second quarter earnings results are in, and the company reported iPhone sales of about 50.8 million units for a revenue figure of $33.2 billion. That’s not a big deviation from last year, in which iPhone unit sales were just 1 percent higher. But the interesting takeaway is that while unit sales decreased, revenue increased. Sure, by just 1 percent, from $32.9 billion, but the shift here means Apple is making more money on each iPhone sold than it has in years prior.
This trend may have a number of implications for the future of Apple’s iPhone business, far and away the core pillar of the entire corporation and around which every other product and service decision orbits. Critics have long lambasted the company’s reliance on iPhone sales — and investors have sent Apple stock tumbling when it does, from time to time, miss sales expectations. The theory is that iPhone sales can’t last forever. In a world where everyone has a smartphone and fewer and fewer consumers are interested in yearly incremental upgrades, Apple’s position at the peak of the tech industry is increasingly jeopardized by its inability to come up with the “next big thing.”
But as we’re seeing play out with current iPhone sales, Apple may not need to push more units every year if it can sell a sizable enough chunk of more expensive units. The average selling price of an iPhone hit a record high of $695 in the first quarter of fiscal 2017. (iPhone ASP was $655 this most recent quarter, yet still up 2 percent year over year.) You can imagine that the figure hasn’t climbed more aggressively because Apple happened to introduce a low-cost revamp of an earlier model in the form of the iPhone SE.
Nonetheless, the company has been selling costlier iPhones, thanks to higher storage options and more visible upgrades to the company’s Plus line, including the dual-camera option on the iPhone 7 Plus. Apple CEO Tim Cook says as much in the company’s earnings release. “We are proud to report a strong March quarter, with revenue growth accelerating from the December quarter and continued robust demand for iPhone 7 Plus,” Cook said in a statement. It’s also worth noting that with the end of cell carrier subsidies and the introduction of more transparent monthly payment plan options with annual upgrade perks — like Apple’s own iPhone Upgrade Program — customers may be trading in old iPhones for newer models at more aggressive rates.
This kind of consumer demand for bigger, more expensive phones is telling for this year’s yet-to-be-announced iPhone models. The next iPhone is rumored to have a bezel-less screen not unlike the Samsung Galaxy S8 and an OLED display. Those two elements will drive up prices. In fact, rumor has it the phone could cost close to $1,000, and Apple might market it as a 10th anniversary edition device. Meanwhile, the company could sell a more casual 7S upgrade for those who still want a phone that costs between $650 and $800.
All of this is to say that Apple is undoubtedly gathering data on how and why customers are opting for more expensive devices and using that to inform how it develops new products. And the data right now seems to indicate customers are far more amenable to a smartphone with a four-digit price tag than they would have been three or four years ago. While it may not please longtime Apple fans to know that the company could push its more bold product innovations to luxury models of the iPhone, it certainly makes sense for the company’s bottom line.