Why iPhone’s average selling price increase is good for Apple

Apple’s gross margins got a boost from higher iPhone revenues

Earlier in the series, we discussed the better-than-expected gross margins for Apple (AAPL). Apple’s gross margins for fiscal 4Q14 were 38%—against its own mid-point expectations of 37.5%. This was a significant effort from Apple despite “significant headwinds” from U.S. dollar appreciation. The whole technology sector experienced the headwinds in the last quarter.

The most obvious reason for better gross margins was the positive leverage from higher revenues. iPhone 6 and iPhone 6 Plus’ early success played an important role in driving revenues for Apple in the last quarter.

However, an important factor driving iPhone revenues was the increase in iPhone’s average selling price (or ASP). As the chart below shows, iPhone’s ASP of $603 in fiscal 4Q14 increased by $42 sequentially and $26 on a year-over-year (or YoY) basis.

In another Market Realist article titled “Why new iPhones could help Apple boost its average pricing,” we discussed how consumers can purchase different models of the iPhone 6 and iPhone 6 Plus for $649–$949 without a contract through AT&T (T), Verizon (VZ), and Sprint (S). We also discussed how the iPhone’s ASP would increase because of the high price range of different models of the iPhone 6.

Favorable commodity environment 

During the conference call to announce fiscal 4Q14 earnings, Apple’s management mentioned that they continue to see a favorable commodity environment. Apple explained this trend in detail when it announced its fiscal 3Q14 earnings. The company expected that the pricing of mobile dynamic random-access memory (or mobile DRAM) and liquid crystal displays (or LCD) would continue to decline. These are the key components that go inside Apple’s products. Apple gets some of these products from Micron (MU).