One of the key takeaways from Apple's (AAPL -1.04%) blockbuster fiscal third-quarter results was the massive increase in iPhone revenue, the tech giant's biggest product line. The smartphone titan reported $39.6 billion in iPhone revenue last quarter, a 50% increase over the year-ago period. This eclipsed the company's overall top-line growth of 36%.

It is also worth noting that the iPhone produced 48.5% of Apple's total revenue last quarter, up from 44.2% in the year-ago period. Another interesting thing to note here is that Apple achieved this impressive growth in iPhone revenue despite a smaller increase in shipments. Let's see how Apple managed to do that, and why it bodes well for the company's future.

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Apple flexes its pricing power with a stronger mix of 5G iPhones

Though Apple doesn't point out how many iPhone units it sells every quarter anymore, IDC estimates that the company shipped 44.2 million units during the quarter. That translates into a 17.8% year-over-year increase in shipments.

However, the much bigger growth in Apple's iPhone revenue makes it clear that the company generated more revenue per unit that it sold last quarter. Dividing Apple's total iPhone revenue by IDC's estimated iPhone shipments during the quarter, the company's average selling price (ASP) comes out to a whopping $895. Apple had shipped 37.6 million iPhones in the prior-year period, according to IDC, which translates into an ASP of $702. So, if we assume IDC's estimates are correct, Apple's iPhone ASP jumped an impressive 27.5% year over year.

Investors should remember that Apple didn't have any 5G iPhone on offer in the June quarter last year, so the big bump in ASP can be attributed to the launch of the iPhone 12. More importantly, Apple's iPhone ASP also increased on a sequential basis. The company had shipped 55.2 million units (as per IDC) in the first quarter of the calendar year and generated $47.9 billion in iPhone revenue, which equates to an ASP of $868.

The quarter-over-quarter increase shows that more customers opted for the 5G-equipped iPhone 12 models as compared to the lower-priced options such as the iPhone SE (starting from $399), the iPhone 11 (starting at $599), or the iPhone XR (starting at $499). For comparison, the cheapest iPhone 12 model is the Mini, which starts at $699.

So, customers are willing to open their wallets for Apple's 5G iPhones despite the presence of cheaper options from Android OEMs (original equipment manufacturers). Even better, Apple seems to be churning out enough volume despite its premium pricing.

Strategy Analytics estimates that Xiaomi was the top Android 5G smartphone company in the second quarter, selling 24.3 million units. This indicates that Apple may have maintained its lead as the top 5G smartphone company in Q2, following up on its impressive showing in the first quarter of the year.

Consumer Intelligence Research Partners had pointed out earlier this year that the iPhone 12 series captured 61% of Apple's total iPhone sales in the March quarter. Assuming that the 5G-equipped iPhones accounted for 60% of Apple's total shipments last quarter, then Apple would be sitting on top of Xiaomi in the 5G smartphone rankings.

Strategy Analytics also points out that total Android 5G smartphone shipments stood at 94.6 million units in Q2, which indicates that Apple continues to hold a substantial share of the 5G smartphone market.

Why is this a big deal?

The 5G smartphone market is still in its early phases of growth. IDC estimates that 5G smartphones could account for 40% of global smartphone shipments this year and 69% in 2025. The overall smartphone market is expected to grow from an estimated 1.35 billion units this year to 1.53 billion units in 2025. So, annual 5G smartphone shipments could exceed 1 billion units by 2025 as compared to an estimated 540 million units this year.

Apple is on track to take advantage of this massive opportunity. The company is reportedly looking to increase the initial production of this year's 5G-enabled iPhone lineup by 20% as compared to the iPhone 12. Additionally, rumors suggest that the company is looking to bring 5G to the masses with the next iteration of its mid-range iPhone SE in 2022.

And finally, Apple has a large installed base of existing users who are yet to upgrade to a 5G device. Counterpoint Research estimates that the iPhone 12 series had hit 100 million units in sales in April this year. Given that Apple had an iPhone installed base of more than 1 billion devices earlier this year, there are hundreds of millions of users to whom Apple can still sell a 5G smartphone.

All of this indicates that Apple is sitting on a terrific opportunity to increase both revenue and margins thanks to a combination of improved iPhone pricing and higher 5G smartphone shipments. What's more, the stock is trading at just 28 times trailing earnings right now, which is cheaper than last year's multiple of over 40. As such, investors looking to add a 5G stock to their portfolios right now should be taking a closer look at Apple.