How Higher iPhone Prices Have Helped Apple

A study of iPhone ASPs (average selling prices) has shown that Apple (AAPL) has been charging more for its iPhone products in recent years. Boosted by the expensive iPhone X, which retails at $999, iPhones’ ASP jumped YoY (year-over-year) to $724 in the June quarter (fiscal Q3 2018) from $606. Apple’s revenue rose 17% YoY during the quarter to $53.3 billion from $45.4 billion, beating Wall Street’s expectation of $52.3 billion. Had iPhones’ ASP stayed flat YoY at $606, Apple’s June quarter revenue may have risen by just 6.5%.

While iPhones are Apple’s largest business, advertising is the largest business at Alphabet (GOOGL) and Facebook (FB). The higher iPhone ASP has meant that Apple has been able to beat revenue expectations despite selling fewer units. In fiscal Q3 2018, Apple sold 41.3 million iPhones, missing analysts’ estimate of 41.8 million iPhones. Apple also missed iPhone sales expectations in fiscal Q2. Alphabet and Facebook grew their June quarter revenue by 25.6% and 42% YoY, respectively.

A confluence of factors has pressured Apple to defend its share of the global smartphone market. Whereas smartphone penetration in Apple’s core markets has reached saturation, in growth markets such as India and China, the company is struggling with stiff competition from Chinese brands such as Huawei and Xiaomi.

While Samsung (SSNLF) maintained its lead as the world’s top smartphone company in the second quarter with a 19.3% share of the market, Apple dropped to third place after ceding to Huawei, according to Gartner. To counter competition, Apple is working with IBM (IBM) to try to extend the iPhone market beyond consumers to businesses users.