Although Apple (NASDAQ:AAPL) sells a wide range of products, analysts, investors, and the media seem to focus heavily on just one of the company's product lines: the iPhone. And there's good reason for that. In this article I'll go over why the iPhone business is so critical to Apple and discuss some of the basics that current and potential investors in Apple stock need to know about it.
A massive business
During Apple's fiscal year 2017, which ended in September of that year, the company raked in about $229.2 billion in revenue. Of that, roughly $141.3 billion -- or more than 61.6% -- came from iPhone sales. While that percentage was down modestly from the 63.3% that the iPhone made up in the company's prior fiscal year, it's clear that Apple's business practically lives and dies by the performance of its iPhone business.
What's even more interesting is that Apple's iPhone business has been doing phenomenally well during fiscal year 2018, with sales up 15% year over year through the first three quarters of that year. Now, since Apple's sales over that period also grew by about 15% year over year, iPhone revenue as a percentage of the total during that time was only up marginally, at 63.9% of sales during that time against almost 63.7% of sales during the same period of fiscal year 2017.
The key, though, is that, at least through the first three quarters of fiscal year 2018, Apple didn't become less dependent on the iPhone -- the iPhone delivered robust enough growth that the company's dependence on the business was practically unchanged.
Two metrics to watch
Each quarter, Apple reports two important metrics around the iPhone. The first is the total revenue that the company generated from the product line; the second is total units shipped. From those two metrics, investors can derive a third important metric -- average selling prices.
When the smartphone market was on a fast growth trajectory, Apple could rely heavily on unit-shipment growth to deliver strong revenue and profit growth. For some perspective, Apple enjoyed 73% iPhone unit-shipment growth during its fiscal year 2012, and then enjoyed an additional 20% iPhone unit-shipment growth in its fiscal year 2013. Interestingly, iPhone revenue grew by 71% and 16%, respectively, during those years, implying average-selling-price contraction.
In recent years, though, Apple has struggled to grow iPhone unit shipments. After a monster year of iPhone unit growth during its fiscal year 2015, thanks to the so-called "super cycle" that the launch of the iPhone 6 and iPhone 6 Plus triggered (units were up 37% and revenue was up 52%), Apple saw unit shipments decline 8% in fiscal year 2016 before inching up 2% in fiscal year 2017.
What's interesting is that over the course of fiscal year 2018, Apple hasn't been able to deliver real iPhone unit-shipment growth. iPhone unit shipments were only up by around 754,000 units (practically flat year over year) during the first three quarters of the year. iPhone revenue, on the other hand, was up a whopping 15% during that time. This means that basically all of the iPhone revenue growth that Apple experienced through the first three quarters of fiscal year 2018 was due to an increase in average selling prices.
It'll be interesting to see how both iPhone unit shipments and average selling prices trend over the course of fiscal year 2019 -- and beyond.