Apple's (AAPL 0.81%) latest quarterly report has made it clear that the smartphone giant has entered the 5G smartphone era on the right foot, with iPhone revenue jumping 65% year over year in the second quarter of fiscal 2021.

Apple sold nearly $48 billion worth of iPhones during the three months ending March 27, 2021, compared to the prior-year period's sales of almost $29 billion. Though Apple doesn't report iPhone unit sales anymore, a look at third-party data from Strategy Analytics indicates how it has become a dominant player in the 5G smartphone market.

Breaking down Apple's iPhone numbers

Strategy Analytics estimates that Apple sold 57 million iPhones in the first quarter of 2021, which coincides with the company's fiscal Q2. It had sold 39 million units in the year-ago quarter. The average selling price (ASP) for each iPhone stood at $841 (by dividing Apple's Q2 iPhone revenue by the estimated number of shipments).

Person holding  smartphone with the letters 5G hovering over it

Image source: Getty Images.

That's a 13.3% increase from the year-ago period's iPhone ASP of $742. So, Apple's massive iPhone revenue growth was a function of an increase in both the ASP and volumes. The 5G-enabled iPhone 12 lineup played a major role in this growth. It gave consumers access to the latest wireless technology at varying price points to suit their pockets, encouraging them to upgrade to the new devices.

Not surprisingly, Apple ended up capturing just over 30% of the 5G smartphone market in the first quarter of 2021 and stood at the top of the sales chart. The company shipped 40.4 million 5G iPhones during the quarter as compared to none in the year-ago period. What's more, nearly 71% of the iPhones shipped during the quarter were 5G-enabled.

The higher mix of 5G devices helped Apple's ASP during the quarter. Apple CEO Tim Cook pointed out on the latest earnings conference call that the iPhone 12 is the company's most popular model, while the Pro and the Pro Max are also registering strong numbers. This isn't unexpected, as these three were the top-selling smartphones globally earlier this year.

The base variant of the iPhone 12 starts at $799, and the price goes up depending on the memory configuration. The Pro model starts at $999 for the base variant, while the Pro Max starts at $1,099. Apple also offers a cheaper 5G model at $699 in the form of the iPhone Mini, but the ASP shows that consumers are willing to pay more for the higher-end offerings.

All of this makes it clear that Apple is enjoying solid pricing power in 5G smartphones -- a trend that's unlikely to change anytime soon.

Competitors are playing catch-up

It has taken Apple less than six months to climb to the top of the 5G smartphone rankings since the launch of the iPhone 12 series models. A year ago, Apple was nowhere on the scene when Samsung led this market with a third of 5G smartphone shipments.

The South Korean giant had shipped 8 million 5G smartphones in the first quarter of 2020. It has doubled its tally to 17 million units this time, but the market has grown at a far greater pace of 458% year over year. The only companies outpacing the broader 5G market's growth last quarter were Chinese OEMs (original equipment manufacturers) Oppo, Vivo, and Xiaomi. Oppo occupied the second position with 21.5 million shipments, which was nearly half of Apple's.

As already discussed, Apple's solid lead is a result of the company's impressive iPhone 12 pricing, and the fact that it has a huge installed base of users in an upgrade window. Cook had said earlier this year that there are more than 1 billion iPhones in use. According to a third-party estimate, around 70% of the iPhone installed base was running iOS 13 in 2020. It is worth noting that the iPhone 6S, released in 2015, is the oldest device that can run iOS13.

Not surprisingly, Apple was sitting on a huge number of users waiting for an upgrade before the iPhone 12 arrived. Mixpanel had estimated toward the end of 2019 that 350 million iPhones were in an upgrade window as a big chunk of users were using older devices, and that calculation was based on an installed base of 900 million.

Investor takeaway

Apple is benefiting from this upgrade cycle, as last quarter's shipments show. More importantly, it is at the beginning of the upgrade cycle, as the iPhone 12 lineup has been on the market for just one full quarter. The good part is that Apple expects this upgrade cycle to gather steam as the year progresses, with the company expected to build more initial units of its 2021 models.

Additionally, the 5G smartphone market's momentum is expected to last for a long time to come, with annual shipments expected to hit 1 billion units in 2025. Apple's strong start in this space and its solid market share indicate that it is set up for multi-year growth, making it one of the best 5G stocks to buy right now.