Last quarter, the iPhone broke a trend of three consecutive quarters of unit declines, thanks to the launch of the iPhone 7 and 7 Plus. In this segment from Industry Focus: Tech, Motley Fool analysts Dylan Lewis and Evan Niu, CFA discuss how Apple's (NASDAQ:AAPL) most important business is faring.
A full transcript follows the video.
This podcast was recorded on Feb. 3, 2017.
Dylan Lewis: Why don't we hop right into the iPhone segment? This is really where they're making most of their money.
Evan Niu: Yeah. They sold another record of 78.3 million. The last three consecutive quarters, they put up negative growth. So, they put an end to that trend. Of course, this creates another tough comparison for next year, raises the bar for a year from now. But, personally, I wasn't that impressed with the iPhone 7 as a product.
Lewis: Do you own it?
Niu: No. It's the first time in eight years that I haven't upgraded my phone. [laughs]
Lewis: I don't own the iPhone 7 either, so don't feel bad. [laughs]
Niu: But, literally every year I've been upgrading, this is the first time I'm not, because I just didn't think it was that compelling. But, obviously the market really does. Part of it is that the 7 Plus is really the hot seller this quarter. Apple even acknowledged that they did a poor job predicting demand. They allocated less than they should have to the 7 Plus production. There's not really a killer feature in the iPhone this year. Arguably, the biggest thing is the dual camera system that is specifically for the 7 Plus. So, it seems like a lot of people are picking that bigger phone. I think it costs $120 extra now. You can see it in the numbers. They put up really strong results here.
Lewis: Yeah. And I think you really see that when you look at average selling price. That grew to $695 in the most recent quarter, up from $619 in the previous quarter. And a lot of that is the 7 Plus model, and consumers clearly voting for the better camera, and being willing to pony up a little bit more dough for it.
Niu: And/or extra storage, because those things shoot 4K video, and you need a lot of storage to store all that.
Lewis: Yeah. absolutely. So, if you put those two numbers together, the units and average selling price, you get roughly $54.5 billion in revenue. So, right now, we're looking at the iPhone segment making up about 70% of revenue for Apple for this quarter. Higher than it's been in the past, but not necessarily surprising, because the iPhone segment was so massively popular and so successful this quarter.
Niu: Yeah. They were so supply constrained the entire quarter. They acknowledged that they didn't meet supply-demand balance until January. So, they were pretty short on inventory throughout the entire quarter. To still be able to hit these numbers even with constraints and, arguably, not a super strong feature set -- I was kind of blown away, honestly.