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Apple Found a Way to Keep Its ASP Growing

By Danny Vena - Sep 15, 2018 at 7:17AM

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By increasing the average selling price of the iPhone, Apple is effectively baking in future growth.

Apple's (AAPL 3.15%) much anticipated annual product reveal is now in the rearview mirror. In typical Apple fashion, executives expounded on the latest and greatest the company has to offer; the company introduced a revamped version of the Apple Watch and announced updates to HomePod as well as updates to the operating systems for both the Apple TV and the Mac.

The spotlight was, of course, on the latest edition of the company's flagship iPhone. As expected, Apple unveiled three new versions of its signature device, with something for everyone. More importantly, Apple revealed that it's found a way to keep its revenue growing, even in the face of slowing iPhone sales growth.

Apple CEO Tim Cook on stage at the company's annual product event.

Apple CEO Tim Cook on stage at the company's annual product event. Image source: Apple.

Still premium pricing

While many believed the company would lower the price of the latest upgrade in an attempt to gain market share, Apple priced the iPhone Xs at $999 -- the same cost as the iPhone X when it was released last year. Here's the breakdown of the various pricing options:

iPhone Model

64GB

128GB

256GB

512GB

iPhone Xs Max

$1,099

NA

$1,249

$1,449

iPhone Xs

$999

NA

$1,149

$1,349

iPhone Xr

$749

$799

$899

N/A

Data source: Apple.

One of the keys to Apple's growth over the past year has been its ability to increase the average selling price (ASP) that customers pay for its iPhone. In each of three quarters since its release, Apple customers bought the iPhone X -- the highest-priced version -- more than any other iPhone model, helping to drive up revenue even in the face of slowing sales growth.

The growing importance of ASP comes into play when reviewing the trajectory of Apple's iPhone unit sales. While total revenue from sales of the devices climbed 20% year over year, unit sales increased just 1% -- with ASP accounting for the difference. The ASP of the iPhone grew to $724, up from just $606 in the prior-year quarter. iPhone pricing hit a record high in the first quarter 2018, with an ASP of $796.

It's important to note that, with the exception of the 64GB iPhone Xr, every other configuration of the just-announced iPhone is priced above the ASP record set in the 2018 first quarter.

It's still all about the iPhone

As the single largest contributor to Apple's success, it's hard to overstate the importance of the iPhone right now. This was perfectly illustrated during Apple's third-quarter financial report. The company grew revenue to $53.3 billion, up 17% year over year, with the iPhone accounting for 56% of Apple's sales during the quarter, so the device is still the company's principle revenue driver.

Apple has been taking steps to reduce its reliance on the iPhone, with an increasing focus on its Services revenue and its growing "other products" segment. While those businesses may eventually offset the slowing growth of iPhone, Apple's decision to keep the premium pricing on its flagship device will undoubtedly keep the revenue needle moving higher.

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